<PAGE> 1
ANNUITY SERVICE OFFICE MAILING ADDRESS
116 Huntington Avenue Post Office Box 9230
Boston, Massachusetts 02116 Boston, Massachusetts
(617) 266-6004 02205-9230
(800) 344-1029
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
SEPARATE ACCOUNT A
OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
FLEXIBLE PURCHASE PAYMENT INDIVIDUAL DEFERRED
COMBINATION FIXED AND VARIABLE ANNUITY CONTRACT
NON-PARTICIPATING
This Prospectus describes an annuity contract (the "CONTRACT") issued
by The Manufacturers Life Insurance Company of North America ("WE" or "US"). The
contract is a flexible purchase payment, individual, deferred,
non-participating, combination fixed and variable annuity contract.
- - Contract values and annuity benefit payments are based upon forty
investment options. Thirty-eight options are variable and two are fixed
account options.
- - Contract values (other than those allocated to one of the fixed
accounts) and variable annuity benefit payments will vary according to
the investment performance of the sub-accounts of one of our separate
accounts, The Manufacturers Life Insurance Company of North America
Separate Account A (the "VARIABLE ACCOUNT"). Contract values may be
allocated to, and transferred among, one or more of those sub-accounts.
- - Each sub-account's assets are invested in a corresponding portfolio of
Manufacturers Investment Trust (the "TRUST"). The Trust is a mutual
fund. We will provide the contract owner ("YOU") with a prospectus for
the Trust with this Prospectus.
- - SHARES OF THE TRUST ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER AGENCY.
- - Except as specifically noted here and under the caption "FIXED ACCOUNT
INVESTMENT OPTIONS" below, this Prospectus describes only the variable
portion of the contract.
- - Special terms are defined in a glossary in APPENDIX A.
PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. IT
CONTAINS INFORMATION ABOUT THE VARIABLE ACCOUNT AND THE VARIABLE PORTION OF THE
CONTRACT THAT YOU SHOULD KNOW BEFORE INVESTING.
THE CONTRACTS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC. NEITHER THE SEC
NOR ANY STATE HAS DETERMINED WHETHER THIS PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 2
ADDITIONAL INFORMATION about the contract and the Variable Account is contained
in a Statement of Additional Information, dated the same date as this
Prospectus, which has been filed with the SEC and is incorporated herein by
reference. The Statement of Additional Information is available without charge
upon request by writing us at the address on the front cover or by telephoning
(800) 344-1029.
The SEC maintains a Web site (http://www.sec.gov) that contains the Statement of
Additional Information and other information about us, the contracts and the
Variable Account.
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS
<TABLE>
<S> <C>
General Information and History ........................................... 3
Performance Data .......................................................... 3
Services
Independent Auditors ................................................. 9
Servicing Agent ...................................................... 10
Principal Underwriter ................................................ 10
Financial Statements ...................................................... 11
</TABLE>
The date of this Prospectus is May 1, 1999
VANTAGE.PRO599
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY ................................................................... 4
GENERAL INFORMATION ABOUT US, THE VARIABLE ACCOUNT AND THE TRUST .......... 10
The Manufacturers Life Insurance Company of North America ............ 10
The Variable Account ................................................. 10
The Trust ............................................................ 11
DESCRIPTION OF THE CONTRACT ............................................... 15
ACCUMULATION PERIOD PROVISIONS ......................................... 15
Purchase Payments .................................................... 15
Payment Enhancements ................................................. 16
Accumulation Units ................................................... 17
Value of Accumulation Units .......................................... 17
Net Investment Factor ................................................ 18
Transfers Among Investment Options ................................... 18
Maximum Number of Investment Options ................................. 18
Telephone Transactions ............................................... 18
Special Transfer Services - Dollar Cost Averaging .................... 19
Asset Rebalancing Program ............................................ 19
Withdrawals .......................................................... 19
Special Withdrawal Services - the Income Plan ........................ 20
Loans ................................................................ 21
Death Benefit During the Accumulation Period ......................... 22
In General ........................................................ 22
Amount of Death Benefit ........................................... 22
Payment of Death Benefit .......................................... 23
PAY-OUT PERIOD PROVISIONS ................................................. 24
General .............................................................. 24
Annuity Options ...................................................... 24
Determination of Amount of the First Variable Annuity Benefit
Payment ............................................................ 25
Annuity Units and the Determination of
Subsequent Variable Annuity Benefit Payments ......................... 25
Transfers During the Pay-Out Period .................................. 26
Death Benefit During the Pay-Out Period .............................. 26
OTHER CONTRACT PROVISIONS ................................................. 26
Ten Day Right to Review .............................................. 26
Ownership ............................................................ 26
Annuitant ............................................................ 27
Beneficiary .......................................................... 27
Modification ......................................................... 27
Company Approval ..................................................... 27
Misstatement and Proof of Age, Sex or Survival ....................... 27
FIXED ACCOUNT INVESTMENT OPTIONS .......................................... 28
Securities Registration .............................................. 28
Guarantee ............................................................ 28
Reinsurance .......................................................... 28
Investment Options ................................................... 28
Investment Accounts .................................................. 28
Renewals ............................................................. 28
Transfers ............................................................ 29
Withdrawals .......................................................... 29
Loans ................................................................ 29
Fixed Annuity Options ................................................ 29
CHARGES AND DEDUCTIONS .................................................... 29
Withdrawal Charges ................................................... 30
Reduction or Elimination of Withdrawal Charges ....................... 31
Administration Fees .................................................. 31
Mortality and Expense Risk Charge .................................... 32
Taxes ................................................................ 32
Expenses of Distributing Contract .................................... 32
FEDERAL TAX MATTERS ....................................................... 32
INTRODUCTION ........................................................... 32
TAXATION OF ANNUITIES IN GENERAL ....................................... 33
Tax Deferral During Accumulation Period ............................ 33
Non-Natural Owners ................................................ 33
Loss of Interest Deduction Where Contracts are Held by or for the
Benefit of Certain Non-Natural Persons .......................... 34
Diversification Requirements ...................................... 34
Ownership Treatment ............................................... 34
Delayed Pay-Out Periods ........................................... 34
Taxation of Partial and Full Withdrawals ............................. 35
Taxation of Annuity Benefit Payments ................................. 35
Taxation of Death Benefit Proceeds ................................... 36
Penalty Tax on Premature Distributions ............................... 36
Aggregation of Contracts ............................................. 36
QUALIFIED RETIREMENT PLANS ................................................ 37
Direct Rollovers .................................................... 38
FEDERAL INCOME TAX WITHHOLDING ............................................ 38
GENERAL MATTERS ........................................................... 38
Tax Deferral ......................................................... 38
Performance Data ..................................................... 38
Asset Allocation and Timing Services ................................. 39
Restrictions Under The Texas Optional Retirement Program ............. 39
Distribution of Contracts ............................................ 39
Contract Owner Inquiries ............................................. 40
Confirmation Statements .............................................. 40
Legal Proceedings .................................................... 40
Year 2000 Issues ..................................................... 40
Cancellation of Contract ............................................. 41
Voting Interest ...................................................... 41
APPENDIX A: SPECIAL TERMS ................................................ A-1
APPENDIX B: EXAMPLES OF CALCULATION OF WITHDRAWAL CHARGE ................. B-1
APPENDIX C: STATE PREMIUM TAXES .......................................... C-1
APPENDIX D: PENNSYLVANIA MAXIMUM MATURITY AGE ............................ D-1
APPENDIX E: EXAMPLES OF PAYMENT ENHANCEMENT CALCULATIONS ................. E-1
APPENDIX F: QUALIFIED PLAN TYPES ......................................... F-1
APPENDIX G: TABLE OF ACCUMULATION VALUES ................................. G-1
</TABLE>
<PAGE> 4
SUMMARY
OVERVIEW OF THE CONTRACT. Under the contract, you make one or more payments to
us for a period of time (the "ACCUMULATION PERIOD") and then later, beginning on
the "MATURITY DATE," we make one or more payments to you (during the "PAY-OUT
PERIOD"). Contract values during the accumulation period and the amounts of
annuity benefit payments during the pay-out period may either be variable or
fixed, depending upon the investment option(s) you select. You may use the
contract to fund either a non-qualified or tax-qualified retirement plan.
PURCHASE PAYMENT LIMITS. The minimum initial purchase payment is $10,000.
Subsequent purchase payments must be at least $30. Purchase payments normally
may be made at any time. If a purchase payment would cause your contract value
to exceed $1,000,000, or your contract value already exceeds $1,000,000,
however, you must obtain our approval in order to make the payment. If permitted
by state law, we may cancel your contract if you have made no payments for two
years, your contract value is less than $2,000 and your payments over the life
of your contract, minus your withdrawals over the life of the contract is less
than $2,000.
PAYMENT ENHANCEMENTS. We will add a "PAYMENT ENHANCEMENT" to your contract for
each payment that you make under your contract. The amount of the payment
enhancement depends on the cumulative amount of your purchase payments. To
receive a higher percentage than that based on the cumulative amount of your
purchase payments, you must provide satisfactory evidence that your total
payments within 13 months of the issue date will be enough to justify the higher
percentage. If your total purchase payments during the 13 month period do not
equal or exceed the amount approved, we reserve the right to recover from your
contract the excess payment enhancement added to the contract. The payment
enhancement is funded from our general account. The payment enhancement is
allocated among investment options in the same proportion as your purchase
payment. The amount available as a death benefit is reduced by payment
enhancements applied in the prior 12 month period. The amount returned if you
exercise your right to return the contract during the "ten day right to review"
period is reduced by any payment enhancements.
INVESTMENT OPTIONS. During the accumulation period, contract values may be
allocated among up to seventeen of the available investment options. Currently,
thirty-eight Variable Account investment options and two fixed account
investment options are available under the contract. Each of the thirty-eight
Variable Account investment options is a sub-account of the Variable Account
that invests in a corresponding portfolio of the Trust. A full description of
each portfolio is in the accompanying Prospectus of the Trust. Your contract
value during the accumulation period and the amounts of annuity benefit payments
will depend upon the investment performance of the portfolio underlying each
sub-account of the Variable Account you select and/or upon the interest we
credit on each fixed account option you select. Subject to certain regulatory
limitations, we may elect to add, subtract or substitute investment options.
TRANSFERS. During the accumulation period, you may transfer your contract values
among any of the investment options. During the pay-out period, you may transfer
your allocations among the Variable Account investment options, but transfers
from Variable Account options to fixed account options or from fixed account
options to Variable Account options are not permitted. Transfers are free.
Transfers from any investment account must be at least $300 or, if less, the
entire balance in the investment account. If, after the transfer, the amount
remaining in the investment account from which the transfer is made would be
less than $100, then we will transfer the entire amount instead of the requested
amount. Special transfer privileges permit you to dollar cost average your
investment in the contract.
WITHDRAWALS. During the accumulation period, you may withdraw all or a portion
of your contract value. The amount you withdraw from any investment account must
be at least $300 or, if less, your entire balance in that investment account. If
a partial withdrawal plus any applicable withdrawal charge would reduce your
contract value to less than $300, we will treat your withdrawal request as a
request to withdraw all of your contract value. A withdrawal charge and an
administration fee may apply to your withdrawal. A withdrawal may be subject to
income tax and a 10% penalty tax. A systematic withdrawal plan service is
available under the contract.
4
<PAGE> 5
LOANS. If your contract is issued in connection with a Section 403(b) qualified
plan that is not subject to Title I of ERISA, you may borrow money from us,
using your contract as the only security for the loan. The effective cost of a
contract loan is 2% per year of the amount borrowed.
CONFIRMATION STATEMENTS. We will send you confirmation statements for certain
transactions in your account. You should carefully review these statements to
verify their accuracy. You should immediately report any mistakes to our Annuity
Service Office (at the address or phone number shown on the cover of this
Prospectus). If you fail to notify our Annuity Service Office of any mistake
within 60 days of the mailing of the confirmation statement, you will be deemed
to have ratified the transaction.
DEATH BENEFITS. We will pay the death benefit described below to your
BENEFICIARY if you die during the accumulation period. If a contract is owned by
more than one person, then the surviving contract owner will be deemed the
beneficiary of the deceased contract owner. No death benefit is payable on the
death of any ANNUITANT (a natural person or persons whose life is used to
determine the duration of annuity benefit payments involving life
contingencies), except that if any contract owner is not a natural person, the
death of any annuitant will be treated as the death of an owner.
The amount of the death benefit will be calculated as of the date on
which our Annuity Service Office receives written notice and proof of death and
all required claim forms. The amount of the death benefit during the first nine
contract years will be the greater of:
- - the contract value less any payment enhancements in the 12 month period
prior to the date of death, or
- - the excess of the sum of all purchase payments less any payment
enhancements in the 12 month period prior to the date of death over the
sum of any amounts deducted in connection with partial withdrawals.
After the ninth contract year the death benefit will be the greater of:
- - the contract value less any payment enhancements in the 12 month period
prior to the date of death, or
- - the excess of the sum of all purchase payments over the sum of any
amounts deducted in connection with partial withdrawals, or
- - the death benefit on the last day of the ninth contract year, plus the
sum of all purchase payments made and less any amount deducted in
connection with partial withdrawals since then.
If there are any unpaid loans (including unpaid interest) under the contract,
the death benefit equals the death benefit calculated according to the
applicable formula, minus the amount of the unpaid loans. If the annuitant dies
during the pay-out period and annuity payment method selected called for
payments for a guaranteed period, we will make the remaining guaranteed payments
to the beneficiary.
ANNUITY BENEFIT PAYMENTS. We offer a variety of fixed and variable annuity
benefit payment options. Periodic annuity benefit payments will begin on the
"maturity date" (the date marking the end of the accumulation period and the
beginning of the pay-out period). You select the maturity date, the frequency of
payment and the type of annuity benefit payment option.
TEN DAY REVIEW. You may cancel your contract by returning it to us within 10
days of receiving it.
TAXATION. The status of the contract as an annuity generally allows all earnings
on the underlying investments to be tax-deferred until withdrawn or until
annuity payments begin (see "FEDERAL TAX MATTERS"). This tax deferred treatment
may be beneficial to contract owners in building assets in a long-term
investment program.
5
<PAGE> 6
CHARGES AND DEDUCTIONS. The following table and Example are designed to assist
you in understanding the various costs and expenses related to the contract. The
table reflects expenses of the Variable Account and the underlying portfolio of
the Trust. In addition to the items listed in the following table, premium taxes
may be applicable to certain. The items listed under "Contract Owner Transaction
Expenses" and "Separate Account Annual Expenses" are more completely described
in this Prospectus under "Charges and Deductions." The items listed under "Trust
Annual Expenses" are described in detail in the accompanying Trust Prospectus.
CONTRACT OWNER TRANSACTION EXPENSES
Deferred sales load (withdrawal charge as percentage of purchase
payments)
<TABLE>
<CAPTION>
NUMBER OF COMPLETE YEARS
PURCHASE PAYMENT IN CONTRACT WITHDRAWAL CHARGE PERCENTAGE
<S> <C>
0 8.5%
1 8.5%
2 8.0%
3 7.0%
4 6.0%
5 5.0%
6 4.0%
7 3.0%
8 2.0%
9+ 0.0%
</TABLE>
<TABLE>
<S> <C>
ANNUAL CONTRACT FEE ........................................... $40(1)
</TABLE>
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
<TABLE>
<S> <C>
Mortality and expense risk fees ............................... 1.25%
Administration fee ............................................ 0.30%
Total Separate Account Annual Expense ......................... 1.55%
</TABLE>
TRUST ANNUAL EXPENSES
(as a percentage of Trust average net assets)
<TABLE>
<CAPTION>
TOTAL TRUST
OTHER EXPENSES ANNUAL EXPENSES
MANAGEMENT (AFTER EXPENSE (AFTER EXPENSE
TRUST PORTFOLIO FEES REIMBURSEMENT) REIMBURSEMENT)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Pacific Rim Emerging Market ..... 0.850% 0.360% 1.210%
Science & Technology ............ 1.100% 0.110% 1.210%
International Small Cap ......... 1.100% 0.150% 1.250%
Aggressive Growth ............... 1.000%* 0.090% 1.090%
Emerging Small Company .......... 1.050% 0.050% 1.100%
Small Company Blend ............. 1.050% 0.150%** 1.200%
Mid Cap Growth .................. 0.950%* 0.040% 0.990%
Mid Cap Stock ................... 0.925% 0.000%** 0.925%
Overseas ........................ 0.950% 0.210% 1.160%
International Stock ............. 1.050% 0.200% 1.250%
International Value ............. 1.000% 0.300%** 1.300%
Mid Cap Blend ................... 0.850%* 0.050% 0.900%
</TABLE>
- ----------
(1) The $40 annual administration fee will not be assessed prior to the maturity
date if at the time of its assessment the sum of all investment accounts is
greater than or equal to $100,000.
6
<PAGE> 7
<TABLE>
<CAPTION>
TOTAL TRUST
OTHER EXPENSES ANNUAL EXPENSES
MANAGEMENT (AFTER EXPENSE (AFTER EXPENSE
TRUST PORTFOLIO FEES REIMBURSEMENT) REIMBURSEMENT)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Small Company Value.............. 1.050% 0.180% 1.230%
Global Equity.................... 0.900% 0.110% 1.010%
Growth........................... 0.850% 0.050% 0.900%
Large Cap Growth ................ 0.875%* 0.130% 1.005%
Quantitative Equity.............. 0.700% 0.060% 0.760%
Blue Chip Growth................. 0.875%* 0.045% 0.920%
Real Estate Securities........... 0.700% 0.060% 0.760%
Value............................ 0.800% 0.050% 0.850%
Growth & Income.................. 0.750% 0.040% 0.790%
U.S. Large Cap Value............. 0.875% 0.100%** 0.975%
Equity-Income.................... 0.875%* 0.050% 0.925%
Income & Value .................. 0.800%* 0.090% 0.890%
Balanced......................... 0.800% 0.070% 0.870%
High Yield....................... 0.775% 0.065% 0.840%
Strategic Bond................... 0.775% 0.075% 0.850%
Global Bond...................... 0.800% 0.110% 0.910%
Total Return..................... 0.775% 0.100%** 0.875%
Investment Quality Bond.......... 0.650% 0.070% 0.720%
Diversified Bond ................ 0.750% 0.140% 0.890%
U.S. Government Securities....... 0.650% 0.070% 0.720%
Money Market .................... 0.500% 0.120% 0.620%
Lifestyle Aggressive 1000#....... 0% 1.110%*** 1.110%
Lifestyle Growth 820#............ 0% 1.000%*** 1.000%
Lifestyle Balanced 640#.......... 0% 0.920%*** 0.920%
Lifestyle Moderate 460#.......... 0% 0.830%*** 0.830%
Lifestyle Conservative 280#...... 0% 0.720%*** 0.720%
</TABLE>
*Management Fees for these portfolios changed effective May 1, 1999. Prior to
May 1, 1999, management fees were as follows:
<TABLE>
<S> <C> <C> <C>
Aggressive Growth 1.050% Blue Chip Growth 0.925%
Mid Cap Growth 1.000% Equity Income 0.800%
Mid Cap Blend 0.750% Income & Value 0.750%
Large Cap Growth 0.750%
</TABLE>
**Based on estimates of payments to be made during the current fiscal year.
***Reflects expenses of the Underlying Portfolios. Manufacturers Securities
Services, LLC ("MSS") has voluntarily agreed to pay the expenses of each
Lifestyle Trust (excluding the expenses of the Underlying Portfolios). This
voluntary expense reimbursement may be terminated at any time. If that expense
reimbursement was not in effect, Total Trust Annual Expenses would be .02%
higher based on expenses of the Lifestyle Trusts for the fiscal year ended
December 31, 1998 (except for Lifestyle Conservative 280, which would be 0.03%
higher) as noted in the chart below.
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL TRUST
PORTFOLIO FEES EXPENSES ANNUAL EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Lifestyle Aggressive 1000........... 0% 1.130% 1.130%
Lifestyle Growth 820................ 0% 1.020% 1.020%
Lifestyle Balanced 640.............. 0% 0.940% 0.940%
Lifestyle Moderate 460.............. 0% 0.850% 0.850%
Lifestyle Conservative 280.......... 0% 0.750% 0.750%
</TABLE>
7
<PAGE> 8
#Each Lifestyle Trust will invest in shares of the Underlying Portfolios.
Therefore, each Lifestyle Trust will bear its pro rata share of the fees and
expenses incurred by the Underlying Portfolios and the investment return of each
Lifestyle Trust will be net of the Underlying Portfolio expenses. Each Lifestyle
Portfolio must also bear its own expenses. However, MSS is currently paying
these expenses as described in footnote (***) above.
EXAMPLES
You would pay the following expenses on a $1,000 investment, assuming a 3%
payment enhancement and a 5% annual return on assets, if you surrendered your
contract at the end of the applicable time period:
<TABLE>
<CAPTION>
TRUST PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pacific Rim Emerging Markets ........... $110 $170 $213 $323
Science & Technology ................... $110 $170 $213 $323
International Small Cap ................ $111 $171 $215 $327
Aggressive Growth ...................... $109 $166 $207 $312
Emerging Small Company ................. $109 $166 $207 $313
Small Company Blend* ................... $110 $169
Mid Cap Growth ......................... $108 $163 $202 $302
Mid Cap Stock* ......................... $108 $161
Overseas ............................... $110 $168 $210 $319
International Stock .................... $111 $171 $215 $327
International Value* ................... $111 $172
Mid Cap Blend .......................... $107 $160 $197 $292
Small Company Value .................... $110 $170 $214 $325
Global Equity .......................... $108 $164 $203 $304
Growth ................................. $107 $160 $197 $292
Large Cap Growth ....................... $108 $164 $203 $303
Quantitative Equity .................... $106 $156 $190 $278
Blue Chip Growth ....................... $108 $161 $198 $294
Real Estate Securities ................. $106 $156 $190 $278
Value .................................. $107 $159 $195 $287
Growth & Income ........................ $106 $157 $192 $281
U.S. Large Cap Value* .................. $108 $163
Equity Income .......................... $108 $161 $198 $295
Income & Value ......................... $107 $160 $197 $291
Balanced ............................... $107 $159 $196 $289
High Yield ............................. $107 $158 $194 $286
Strategic Bond ......................... $107 $159 $195 $287
Global Bond ............................ $107 $161 $198 $293
Total Return* .......................... $107 $160
Investment Quality Bond ................ $106 $155 $188 $274
Diversified Bond ....................... $107 $160 $197 $291
U.S. Government Securities ............. $106 $155 $188 $274
Money Market ........................... $105 $152 $183 $263
Lifestyle Aggressive 1000 .............. $109 $167 $208 $314
Lifestyle Growth 820 ................... $108 $163 $202 $303
Lifestyle Balanced 640 ................. $108 $161 $198 $294
Lifestyle Moderate 460 ................. $107 $158 $194 $285
Lifestyle Conservative 280 ............. $106 $155 $188 $274
</TABLE>
*The Example of Expenses for these Trust portfolios contain figures only for one
and three year periods since they are newly created portfolios.
8
<PAGE> 9
You would pay the following expenses on a $1,000 investment, assuming a 3%
Payment Enhancement and a 5% annual return on assets, if you selected an annuity
benefit payment option as provided in the contract or did not surrender the
contract at the end of the applicable time period:
<TABLE>
<CAPTION>
TRUST PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pacific Rim Emerging Markets ......... $29 $90 $153 $323
Science & Technology ................. $29 $90 $153 $323
International Small Cap .............. $30 $91 $155 $327
Aggressive Growth .................... $28 $86 $147 $312
Emerging Small Company ............... $28 $86 $147 $313
Small Company Blend* ................. $29 $90
Mid Cap Growth ....................... $27 $83 $142 $302
Mid Cap Stock* ....................... $26 $81
Overseas ............................. $29 $88 $150 $319
International Stock .................. $30 $91 $155 $327
International Value* ................. $30 $93
Mid Cap Blend ........................ $26 $80 $137 $292
Small Company Value .................. $29 $90 $152 $325
Global Equity ........................ $27 $84 $143 $304
Growth ............................... $26 $80 $137 $292
Large Cap Growth ..................... $27 $84 $143 $303
Quantitative Equity .................. $25 $76 $130 $278
Blue Chip Growth ..................... $26 $81 $138 $294
Real Estate Securities ............... $25 $76 $130 $278
Value ................................ $26 $79 $135 $287
Growth & Income ...................... $25 $77 $132 $281
U. S. Large Cap Value* ............... $27 $83
Equity-Income ........................ $26 $81 $138 $295
Income & Value ....................... $26 $80 $137 $291
Balanced ............................. $26 $79 $136 $289
High Yield ........................... $25 $78 $134 $286
Strategic Bond ....................... $26 $79 $135 $287
Global Bond .......................... $26 $81 $138 $293
Total Return* ........................ $26 $80
Investment Quality Bond .............. $24 $75 $128 $274
Diversified Bond ..................... $26 $80 $137 $291
U.S. Government Securities ........... $24 $75 $128 $274
Money Market ......................... $23 $72 $123 $263
Lifestyle Aggressive 1000 ............ $28 $87 $148 $314
Lifestyle Growth 820 ................. $27 $83 $142 $303
Lifestyle Balanced 640 ............... $26 $81 $138 $294
Lifestyle Moderate 460 ............... $25 $78 $134 $285
Lifestyle Conservative 280 ........... $24 $75 $128 $274
</TABLE>
*The Example of Expenses for these Trust portfolios contain figures only for one
and three year periods since they are newly created portfolios.
For purposes of presenting the foregoing Examples, we have made certain
assumptions. We have assumed that, where applicable, the maximum sales load is
deducted, that there are no transfers or other transactions and that the "Other
Expenses" line item under "Trust Annual Expenses" will remain the same. Those
assumptions, (each of which is mandated by the SEC in an attempt to provide
prospective investors with standardized data with which to compare various
annuity contracts) do not take into account certain features of the contract and
prospective changes in the size of the Trust which may operate to change the
expenses borne by contract owners. CONSEQUENTLY, THE AMOUNTS LISTED IN THE
EXAMPLES ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES BORNE BY CONTRACT OWNERS MAY BE GREATER OR LESSER
THAN THOSE SHOWN.
9
<PAGE> 10
In addition, for purposes of calculating the values in the above
Example, we have translated the $40 annual administration charge listed under
"Annual Contract Fee" to a 0.053% annual asset charge based on a $75,000
estimated approximate average size of contracts of this series.
A TABLE OF ACCUMULATION UNIT VALUES RELATING TO THE CONTRACT IS INCLUDED IN
APPENDIX G TO THIS PROSPECTUS.
LOCATION OF FINANCIAL STATEMENTS OF REGISTRANT AND DEPOSITOR
Our financial statements and those of the Variable Account may be found
in the Statement of Additional Information.
GENERAL INFORMATION ABOUT US, THE VARIABLE ACCOUNT AND THE TRUST
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
We are an indirect subsidiary of Manulife.
We are a stock life insurance company organized under the laws of
Delaware in 1979. Our principal office is located at 116 Huntington Avenue,
Boston, Massachusetts 02116. Our ultimate parent is The Manufacturers Life
Insurance Company ("MANULIFE"), a Canadian mutual life insurance company based
in Toronto, Canada. Prior to January 1, 1996, we were a wholly owned subsidiary
of North American Life Assurance Company ("NAL"), a Canadian mutual life
insurance company. On January 1, 1996 NAL and Manulife merged with the combined
company retaining the Manulife name.
On January 20, 1998, the Board of Directors of Manulife asked the
management of Manulife to prepare a plan for conversion of Manulife from a
mutual life insurance company to an investor-owned, publicly-traded stock
company. Any demutualization plan for Manulife is subject to the approval of the
Manulife Board of Directors and Policyholders as well as regulatory approval.
The Manufacturers Life Insurance Company of North America's financial
ratings are as follows:
A++ A.M. Best
Superior in financial strength; 1st category of 15
AAA Duff & Phelps
Highest in claims paying ability; 1st category of 18
AA+ Standard & Poor's
Very strong in financial strength; 2nd category of 21
Aa2 Moody's
Excellent in financial strength; 3rd category of 21
These ratings, which are current as of the date of this prospectus and are
subject to change, are assigned as a measure of The Manufacturers Life Insurance
Company of North America's ability to honor the death benefit and life
annuitization guarantees but not specifically to its products, the performance
(return) of these products, the value of any investment in these products upon
withdrawal or to individual securities held in any portfolio.
THE VARIABLE ACCOUNT
The Variable Account is one of our separate accounts that invests the contract
values you allocate to it in the Trust portfolio(s) you select.
We established the Variable Account on August 24, 1984. The income,
gains and losses, whether or not realized, from assets of the Variable Account
are credited to or charged against the Variable Account without regard to our
other income, gains or losses. Nevertheless, all obligations arising under the
contracts are our general corporate obligations. Assets of the Variable Account
may not be charged with liabilities arising out of any of our other business.
The Variable Account is registered with the SEC under the Investment
Company Act of 1940, as amended (the "1940 Act") as a unit investment trust. A
unit investment trust is a type of investment
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company which invests its assets in specified securities, such as the shares of
one or more investment companies. Registration under the 1940 Act does not
involve supervision by the SEC of the management or investment policies or
practices of the Variable Account. If we determine that it would be in the best
interests of persons having voting rights under the contracts, the Variable
Account may be operated as a management company under the 1940 Act or it may be
deregistered if 1940 Act registration were no longer required.
The Variable Account currently has thirty-eight sub-accounts. We
reserve the right, subject to compliance with applicable law, to add other
sub-accounts, eliminate existing sub-accounts, combine sub-accounts or transfer
assets in one sub-account to another sub-account that we, or an affiliated
company, may establish. We will not eliminate existing sub-accounts or combine
sub-accounts without the prior approval of the appropriate state or federal
regulatory authorities.
THE TRUST
The Trust is a mutual fund in which the Variable Account invests that has 38
investment portfolios managed by 16 subadvisers.
The assets of each sub-account of the Variable Account are invested in
shares of a corresponding investment portfolio of the Trust. A description of
each Trust portfolio is set forth below. The Trust is registered under the 1940
Act as an open-end management investment company. Each of the portfolios is
diversified for purposes of the 1940 Act, except for the Global Bond Trust and
the five Lifestyle Trusts which are non-diversified. The Trust receives
investment advisory services from Manufacturers Securities Services, LLC, the
successor to NASL Financial Services, Inc. ("MSS").
The Trust currently has sixteen subadvisers who manage all of the
portfolios:
<TABLE>
<CAPTION>
SUBADVISER PORTFOLIO
<S> <C>
A I M Capital Management, Inc. Mid Cap Growth Trust
Aggressive Growth Trust
AXA Rosenberg Investment Management LLC Small Company Value Trust
Capital Guardian Trust Company Small Company Blend Trust
U.S. Large Cap Value Trust
Income & Value Trust
Diversified Bond Trust
Fidelity Management Trust Company Mid Cap Blend Trust
Large Cap Growth Trust
Overseas Trust
Founders Asset Management, LLC International Small Cap Trust
Balanced Trust
Franklin Advisers, Inc. Emerging Small Company Trust
Manufacturers Adviser Corporation Pacific Rim Emerging Markets Trust
Quantitative Equity Trust
Real Estate Securities Trust
Money Market Trust
Lifestyle Trusts
Miller Anderson & Sherrerd, LLP Value Trust
High Yield Trust
Morgan Stanley Asset Management Inc. Global Equity Trust
Pacific Investment Management Company Global Bond Trust
Total Return Trust
Rowe Price-Fleming International, Inc. International Stock Trust
</TABLE>
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<PAGE> 12
<TABLE>
<CAPTION>
SUBADVISER PORTFOLIO
<S> <C>
Salomon Brothers Asset Management Inc U.S. Government Securities Trust
Strategic Bond Trust
State Street Global Advisors Growth Trust
T. Rowe Price Associates, Inc. Science & Technology Trust
Blue Chip Growth Trust
Equity-Income Trust
Templeton Investment Counsel, Inc. International Value Trust
Wellington Management Company, LLP Growth and Income Trust
Investment Quality Bond Trust
Mid Cap Stock Trust
</TABLE>
The following is a brief description of each portfolio:
The PACIFIC RIM EMERGING MARKETS TRUST seeks long-term growth of
capital by investing in a diversified portfolio that is comprised primarily of
common stocks and equity-related securities of corporations domiciled in
countries in the Pacific Rim region.
The SCIENCE & TECHNOLOGY TRUST seeks long-term growth of capital.
Current income is incidental to the portfolio's objective.
The INTERNATIONAL SMALL CAP TRUST seeks capital appreciation by
investing primarily in securities issued by foreign companies which have total
market capitalization or annual revenues of $1 billion or less. These securities
may represent companies in both established and emerging economies throughout
the world.
The AGGRESSIVE GROWTH TRUST (formerly, the Pilgrim Baxter Growth Trust)
seeks long-term capital appreciation by investing the portfolio's asset
principally in common stocks, convertible bonds, convertible preferred stocks
and warrants of companies which in the opinion of the subadviser are expected to
achieve earnings growth over time at a rate in excess of 15% per year. Many of
these companies are in the small and medium-sized category.
The EMERGING SMALL COMPANY TRUST seeks long-term growth of capital by
investing, under normal market conditions, at least 65% of the portfolio's total
assets in common stock equity securities of small capitalization ("small cap")
growth companies. In general, companies in which the portfolios invests will
have market cap values of less than $1.5 billion at the time of purchase.
The SMALL COMPANY BLEND TRUST seeks long-term growth of capital and
income by investing the portfolio's assets, under normal market conditions,
primarily in equity and equity-related securities of companies with market
capitalization between $50 million and $1 billion.
The MID CAP GROWTH TRUST (formerly, the Small/Mid Cap Trust) seeks
long-term capital appreciation by investing the portfolio's assets principally
in common stocks, with emphasis on medium-sized and smaller emerging growth
companies.
The MID CAP STOCK TRUST seeks long-term growth of capital by investing
primarily in equity securities of companies with market capitalizations that
approximately match the range of capitalization of the Wilshire Mid Cap 750
Index.
The OVERSEAS TRUST (formerly, the International Growth and Income
Trust) seeks growth of capital and normally invests at least 65% of the
portfolio's assets in foreign securities (including American Depositary Receipts
(ADRs) and European Depositary Receipts (EDRs). The portfolio may also invest in
U.S. issuers. The portfolios expects to invest primarily in equity securities.
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The INTERNATIONAL STOCK TRUST seeks long-term growth of capital by
investing primarily in common stocks of established, non-U.S. companies.
The INTERNATIONAL VALUE TRUST seeks long-term growth of capital by
investing, under normal market conditions, primarily in equity securities of
companies located outside the U.S., including in emerging markets.
The MID CAP BLEND TRUST (formerly, the Equity Trust) seeks growth of
capital by investing primarily in common stocks of United States issuers and
securities convertible into or carrying the right to buy common stocks.
The SMALL COMPANY VALUE TRUST seeks long term growth of capital by
investing in equity securities of smaller companies which are traded principally
in the markets of the United States.
The GLOBAL EQUITY TRUST seeks long-term capital appreciation by
investing primarily in equity securities throughout the world, including U.S.
issuers and emerging markets.
The GROWTH TRUST seeks long-term growth of capital by investing
primarily in large capitalization growth securities (market capitalizations of
approximately $1 billion or greater).
The LARGE CAP GROWTH TRUST (formerly, the Aggressive Asset Allocation
Trust) seeks long-term growth of capital and normally invests the portfolio's
assets primarily in common stocks. The Subadviser normally invests at least 65%
of the portfolio's assets in equity securities of companies with large market
capitalizations.
The QUANTITATIVE EQUITY TRUST seeks to achieve intermediate and
long-term growth through capital appreciation and current income by investing in
common stocks and other equity securities of well established companies with
promising prospects for providing an above average rate of return.
The BLUE CHIP GROWTH TRUST seeks to achieve long-term growth of capital
(current income is a secondary objective) and many of the stocks in the
portfolio are expected to pay dividends.
The REAL ESTATE SECURITIES TRUST seeks to achieve a combination of
long-term capital appreciation and satisfactory current income by investing in
real estate related equity and debt securities.
The VALUE TRUST seeks to realize an above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing primarily in common and preferred stocks, convertible securities,
rights and warrants to purchase common stocks, ADRs and other equity securities
of companies with equity capitalizations usually greater than $300 million.
The GROWTH AND INCOME TRUST seeks long-term growth of capital and
income, consistent with prudent investment risk, by investing primarily in a
diversified portfolio of common stocks of United States issuers which the
subadviser believes are of high quality.
The U.S. LARGE CAP VALUE TRUST seeks long-term growth of capital and
income by investing the portfolio's assets, under normal market conditions,
primarily in equity and equity-related securities of companies with market
capitalization greater than $500 million.
The EQUITY-INCOME TRUST seeks to provide substantial dividend income
and also long-term capital appreciation by investing primarily in
dividend-paying common stocks, particularly of established companies with
favorable prospects for both increasing dividends and capital appreciation.
The INCOME & VALUE TRUST (formerly, the Moderate Asset Allocation
Trust) seeks the balanced accomplishment of (a) conservation of principal and
(b) long-term growth of capital and income by investing the portfolio's assets
in both equity and fixed-income securities. The subadviser has full discretion
to determine the allocation between equity and fixed-income securities.
The BALANCED TRUST seeks current income and capital appreciation by
investing in a balanced portfolio of common stocks, U.S. and foreign government
obligations and a variety of corporate
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fixed-income securities.
The HIGH YIELD TRUST seeks to realize an above-average total return
over a market cycle of three to five years, consistent with reasonable risk, by
investing primarily in high yield debt securities, including corporate bonds and
other fixed-income securities.
The STRATEGIC BOND TRUST seeks a high level of total return consistent
with preservation of capital by giving its subadviser broad discretion to deploy
the portfolio's assets among certain segments of the fixed-income market as the
subadviser believes will best contribute to achievement of the portfolio's
investment objective.
The GLOBAL BOND TRUST (formerly, the Global Government Bond Trust)
seeks to realize maximum total return, consistent with preservation of capital
and prudent investment management by investing the portfolio's asset primarily
in fixed income securities denominated in major foreign currencies, baskets of
foreign currencies (such as the ECU),and the U.S. dollar.
The TOTAL RETURN TRUST seeks to realize maximum total return,
consistent with preservation of capital and prudent investment management by
investing, under normal market conditions, at least 65% of the portfolio's
assets in a diversified portfolio of fixed income securities of varying
maturities. The average portfolio duration will normally vary within a three- to
six- year time frame based on Pacific Investment Management Company's forecast
for interest rates.
The INVESTMENT QUALITY BOND TRUST seeks a high level of current income
consistent with the maintenance of principal and liquidity, by investing
primarily in a diversified portfolio of investment grade corporate bonds and
U.S. Government bonds with intermediate to longer term maturities. The portfolio
may also invest up to 20% of its assets in non-investment grade fixed income
securities.
The DIVERSIFIED BOND TRUST (formerly, the Conservative Asset Allocation
Trust) seeks high total return as is consistent with the conservation of capital
by investing at least 75% of the portfolio's assets in fixed-income securities.
The U.S. GOVERNMENT SECURITIES TRUST seeks a high level of current
income consistent with preservation of capital and maintenance of liquidity, by
investing in debt obligations and mortgage-backed securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
derivative securities such as collateralized mortgage obligations backed by such
securities.
The MONEY MARKET TRUST seeks maximum current income consistent with
preservation of principal and liquidity by investing in high quality money
market instruments with maturities of 397 days or less issued primarily by
United States entities.
The LIFESTYLE AGGRESSIVE 1000 TRUST seeks to provide long-term growth
of capital (current income is not a consideration) by investing 100% of the
Lifestyle Trust's assets in other portfolios of the Trust ("UNDERLYING
PORTFOLIOS") which invest primarily in equity securities.
The LIFESTYLE GROWTH 820 TRUST seeks to provide long-term growth of
capital with consideration also given to current income by investing
approximately 20% of the Lifestyle Trust's assets in Underlying Portfolios which
invest primarily in fixed income securities and approximately 80% of its assets
in Underlying Portfolios which invest primarily in equity securities.
The LIFESTYLE BALANCED 640 TRUST seeks to provide a balance between a
high level of current income and growth of capital with a greater emphasis given
to capital growth by investing approximately 40% of the Lifestyle Trust's assets
in Underlying Portfolios which invest primarily in fixed income securities and
approximately 60% of its assets in Underlying Portfolios which invest primarily
in equity securities.
The LIFESTYLE MODERATE 460 TRUST seeks to provide a balance between a
high level of current income and growth of capital with a greater emphasis given
to high income by investing approximately 60% of the Lifestyle Trust's assets in
Underlying Portfolios which invest primarily in fixed income securities and
approximately 40% of its assets in Underlying Portfolios which invest primarily
in
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<PAGE> 15
equity securities.
The LIFESTYLE CONSERVATIVE 280 TRUST seeks to provide a high level of
current income with some consideration also given to growth of capital by
investing approximately 80% of the Lifestyle Trust's assets in Underlying
Portfolios which invest primarily in fixed income securities and approximately
20% of its assets in Underlying Portfolios which invest primarily in equity
securities.
A full description of the Trust, including the investment objectives,
policies and restrictions of, and the risks relating to investment in, each
portfolio is contained in the Trust's Prospectus which we provided you along
with this Prospectus. The Trust Prospectus should be read carefully before
allocating purchase payments to a subaccount.
If the shares of a Trust portfolio are no longer available for
investment or in our judgment investment in a Trust portfolio becomes
inappropriate, we may eliminate the shares of a portfolio and substitute shares
of another portfolio of the Trust or another open-end registered investment
company. Substitution may be made with respect to both existing investments and
the investment of future purchase payments. However, we will make no such
substitution without first notifying you and obtaining approval of the SEC (to
the extent required by the 1940 Act).
You instruct us how to vote Trust shares.
Shares of the Trust portfolios held in the Variable Account will be
voted at any shareholder meetings in accordance with voting instructions
received from the persons having the voting interest in the contracts. We will
determine the number of portfolio shares for which voting instructions may be
given not more than 90 days prior to the meeting. Proxy materials will be
distributed to each person having the voting interest under the contract
together with appropriate forms for giving voting instructions. We will vote all
portfolio shares that we hold (including our own shares and those we hold in the
Variable Account for contract owners) in proportion to the instructions so
received.
During the accumulation period, the contract owner has the voting
interest under a contract. During the pay-out period, the annuitant has the
voting interest under a contract. We reserve the right to make any changes in
the voting rights described above that may be permitted by the Federal
securities laws, regulations or interpretations thereof. For further information
on voting interests under the contract see "Voting Interests" in this
prospectus.
DESCRIPTION OF THE CONTRACT
ACCUMULATION PERIOD PROVISIONS
Initial purchase payments usually must be at least $10,000, subsequent ones at
least $30, and total payments no more than $1 million (without our approval).
PURCHASE PAYMENTS
Your purchase payments are made to us at our Annuity Service Office.
The minimum initial purchase payment is $10,000. Subsequent purchase payments
must be at least $30. Purchase payments may be made at any time. We may provide
for purchase payments to be automatically withdrawn from your bank account on a
periodic basis. If a purchase payment would cause your contract value to exceed
$1,000,000 or your contract value already exceeds $1,000,000, you must obtain
our approval in order to make the payment.
If permitted by state law, we may cancel a contract at the end of any
two consecutive contract years in which no purchase payments have been made, if
both:
- - the total purchase payments made over the life of the contract, less
any withdrawals, are less than $2,000; and
- - the contract value at the end of such two year period is less than
$2,000.
We may vary the cancellation of contract privileges in certain states in order
to comply with state insurance laws and regulations. If we cancel your contract,
we will pay you the contract value computed as of the valuation period during
which the cancellation occurs, minus the amount of any outstanding loan and
minus the annual $40 administration fee. The amount paid will be treated as a
withdrawal for federal tax
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purposes and thus may be subject to income tax and to a 10% penalty tax (see
"FEDERAL TAX MATTERS").
You designate in your contract application how your purchase payments
are to be allocated among the investment options. You may change the allocation
of subsequent purchase payments at any time by notifying us in writing (or by
telephone if you comply with our telephone transfer procedures described below).
PAYMENT ENHANCEMENTS
We add 3% or more to each payment you make.
When you make a purchase payment we will add a payment enhancement to
your contract. The payment enhancement is funded from our general account and is
allocated among investment options in the same proportion as your purchase
payment. The amount available as a death benefit is reduced by payment
enhancements applied in the prior 12 month period. The amount returned if you
exercise your right to return your contract during the "ten day right to review"
period is reduced by any payment enhancements.
We are currently offering a promotional payment enhancement for initial
and subsequent purchase payments to contracts issued on and after January 1,
1999. The promotional payment enhancement is set forth below. To be eligible for
the promotional payment enhancement, initial purchase payments must be received
by us on or after January 1, 1999. Subsequent payments to contracts issued on or
after January 1, 1999 will receive the promotional payment enhancement if the
promotion is in effect when the subsequent payment is received by us. Initial
and subsequent purchase payments that do not receive the promotional payment
enhancement will receive the payment enhancement described in the prospectus.
The promotional payment enhancement may be terminated by the us at any time.
The payment enhancement is a percentage of your purchase payment that
varies (based upon on the cumulative amount of your purchase payments to the
date of that payment) as follows:
<TABLE>
<CAPTION>
Promotional
Cumulative Purchase Payments Payment Enhancement Payment Enhancement
---------------------------- ------------------- -------------------
<S> <C> <C>
Less than $500,000 3.0% 4.0%
$500,000 or more but less
than $2,500,000 4.0% 5.0%
$2,500,000 or more 5.0% 6.0%
</TABLE>
An example of the calculation of the payment enhancement is set forth in
APPENDIX E. Payment enhancements are not considered to be "investment in the
contract" for income tax purposes (see "FEDERAL TAX MATTERS").
Using a Letter of Intent may permit you to receive a larger payment enhancement.
Letter of Intent (not available in Oregon). The next higher payment enhancement
percentage may be applied to your initial purchase payment if you provide us
with satisfactory evidence (referred to as a "Letter of Intent") that your total
purchase payments in the first 13 months would satisfy the requirement for the
higher percentage. Satisfactory evidence will require, but is not limited to, a
minimum initial purchase payment of at least 50% of the minimum required payment
for the higher percentage. We reserve the right to recover an amount from your
contract if your total purchase payments received within 13 months from the
issue date of your contract do not equal or exceed the amount (promised in your
Letter of Intent) used to determine a payment enhancement. The amount we may
recover is the greater of (a) or (b) where:
(a) is the amount of payment enhancement applied to your contract
minus the amount of payment enhancement that would have been
applied had you not submitted a Letter of Intent (the "excess
payment enhancement"), and
(b) your contract value multiplied by the ratio of the excess
payment enhancement over your total purchase payments
(excluding the amount of the payment enhancement).
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Amounts recovered will be withdrawn from each investment option in the same
proportion that the value of the investment account of each investment option
bears to the contract value. IN THE EVENT THE VALUE OF ACCUMULATION UNITS FOR AN
INVESTMENT OPTION WHICH HAS BEEN ALLOCATED A PAYMENT ENHANCEMENT DECLINES, WE
RETAIN THE RIGHT TO RECOVER THE ORIGINAL AMOUNT OF PAYMENT ENHANCEMENT CREDITED
TO THE INVESTMENT OPTION. THEREFORE, YOU BEAR THE RISK THAT IF YOUR LETTER OF
INTENT IS NOT COMPLETED, THE VALUE OF YOUR CONTRACT MAY BE LESS THAN HAD YOUR
LETTER OF INTENT NOT BEEN EXECUTED. IF THE AMOUNT RECOVERED EXCEEDS THE CONTRACT
VALUE, WE WILL TERMINATE YOUR CONTRACT WITHOUT VALUE.
IF YOU FAIL TO INFORM US THAT YOU INTEND TO SUBMIT MULTIPLE PAYMENTS WITHIN 13
MONTHS OF YOUR CONTRACT ISSUE DATE, YOUR CONTRACT MAY RECEIVE A LOWER PAYMENT
ENHANCEMENT PERCENTAGE THAN WOULD OTHERWISE BE AVAILABLE.
If you are considering purchasing a contract in connection with certain
qualified plans, then special considerations regarding the payment enhancement
may apply. Corporate and self-employed pension and profit sharing plans, as well
as tax-sheltered annuity plans, are subject to nondiscrimination rules. The
nondiscrimination rules generally require that benefits, rights, or features of
the plan not discriminate in favor of highly compensated employees. In
evaluating whether the contract is suitable for purchase in connection with such
a qualified plan, you should consider the effect of the payment enhancement on
the plan's compliance with the applicable nondiscrimination requirements.
Violation of these nondiscrimination rules can cause loss of the plan's tax
favored status under the Code. Employers intending to use the Contract in
connection with such plans should seek competent advice. - See Appendix F.
ACCUMULATION UNITS
The value of an investment account is measured in "accumulation units," which
vary in value with the performance of the underlying Trust portfolio.
During the accumulation period, we will establish an "INVESTMENT
ACCOUNT" for you for each Variable Account investment option to which you
allocate a portion of your contract value. Amounts are credited to those
investment accounts in the form of "ACCUMULATION UNITS" (units of measure used
to calculate the value of the variable portion of your contract during the
accumulation period). The number of accumulation units to be credited to each
investment account is determined by dividing the amount allocated to that
investment account by the value of an accumulation unit for that investment
account next computed after the purchase payment is received at our Annuity
Service Office complete with all necessary information or, in the case of the
first purchase payment, pursuant to the procedures described below.
Initial purchase payments received by mail will usually be credited on
the business day (any date on which the New York Stock Exchange is open and the
net asset value of a Trust portfolio is determined) on which they are received
at our Annuity Service Office, and in any event not later than two business days
after our receipt of all information necessary for issuing the contract. You
will be informed of any deficiencies preventing processing if your contract
cannot be issued. If the deficiencies are not remedied within five business days
after receipt, your purchase payment will be returned promptly, unless you
specifically consent to our retaining your purchase payment until all necessary
information is received. Initial purchase payments received by wire transfer
from broker-dealers will be credited on the business day received by us if the
broker-dealers have made special arrangements with us.
VALUE OF ACCUMULATION UNITS
The value of your accumulation units will vary from one business day to
the next depending (the "VALUATION PERIOD") upon the investment results of the
investment options you select. The value of an accumulation unit for each
sub-account was arbitrarily set at $10 or $12.50 for the first Business Day
under other contracts we have issued. The value of an accumulation unit for any
subsequent Business Day is determined by multiplying the value of an
accumulation unit for the immediately preceding Business Day by the net
investment factor for such sub-account (described below) for the valuation
period for which the value is being determined. Accumulation units will be
valued at the end of each Business Day. A Business Day is deemed to end at the
time of the determination of the net asset value of the Trust shares.
NET INVESTMENT FACTOR
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The net investment factor is an index used to measure the investment
performance of a sub-account from one valuation period to the next. The net
investment factor may be greater or less than or equal to one; therefore, the
value of an accumulation unit may increase, decrease or remain the same. The net
investment factor for each sub-account for any valuation period is determined by
dividing (a) by (b) and subtracting (c) from the result:
Where (a) is:
- - the net asset value per share of a portfolio share held in the
sub-account determined at the end of the current valuation period, plus
- - The per share amount of any dividend or capital gain distributions made
by the portfolio on shares held in the sub-account if the "ex-dividend"
date occurs during the current valuation period.
Where (b) is the net asset value per share of a portfolio share held in
the sub-account determined as of the end of the immediately preceding
valuation period.
Where (c) is a factor representing the charges deducted from the
sub-account on a daily basis for administrative expenses, a portion of
the distribution expenses, and mortality and expense risks. That factor
is equal on an annual basis to 1.55% (0.30% for administrative expenses
and 1.25% for mortality and expense risks).
TRANSFERS AMONG INVESTMENT OPTIONS
Amounts Invested may be transferred among investment options.
During the accumulation period, you may transfer amounts among the
investment options at any time and without charge upon written notice to us or
by telephone if you authorize us in writing to accept telephone transfer
requests. Accumulation units will be canceled from the investment account from
which you transfer amounts transferred and credited to the investment account to
which you transfer amounts. Your contract value on the date of the transfer will
not be affected by a transfer. You must transfer at least $300 or, if less, the
entire value of the investment account. If after the transfer the amount
remaining in the investment account is less than $100, then we will transfer the
entire amount instead of the requested amount. We reserve the right to limit,
upon notice, the maximum number of transfers you may make to one per month or
six at any time within a contract year. In addition, we reserve the right to
defer a transfer at any time we are unable to purchase or redeem shares of the
Trust portfolios. We also reserve the right to modify or terminate the transfer
privilege at any time (to the extent permitted by applicable law).
MAXIMUM NUMBER OF INVESTMENT OPTIONS
You currently are limited to a maximum of seventeen investment options
(including the fixed account investment options) during the accumulation period.
In calculating this limit, investment options to which you have allocated
purchase payments at any time during the accumulation period will be counted
toward the seventeen maximum even if you no longer have contract value allocated
to the investment option.
TELEPHONE TRANSACTIONS
Telephone transfers and withdrawals are permitted.
You are permitted to request transfers and withdrawals by telephone. We
will not be liable for following instructions communicated by telephone that we
reasonably believe to be genuine. To be permitted to request a transfer or
withdrawal by telephone, you must elect the option on the Application. (If you
do not initially elect an option in the Application form, you may request
authorization by executing an appropriate authorization form that we will
provide you upon request.) We will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine and may only be liable for
any losses due to unauthorized or fraudulent instructions where we fail to
employ our procedures properly. Such procedures include the following. Upon
telephoning a request, you will be asked to provide information that verifies
that it is you calling. For both your and our protection, we will tape record
all conversations with you. All telephone transactions will be followed by a
confirmation statement of the transaction. We reserve the right to impose
maximum withdrawal amounts and other new procedural requirements regarding
transfer privileges.
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SPECIAL TRANSFER SERVICES - DOLLAR COST AVERAGING
Dollar Cost Averaging and Asset Rebalancing programs are available.
We administer a Dollar Cost Averaging ("DCA") program. If you enter
into a DCA agreement, you may instruct us to transfer monthly a predetermined
dollar amount from any sub-account or the one year fixed account investment
option to other sub-accounts until the amount in the sub-account from which the
transfer is made or one year fixed account investment option is exhausted. In
states where approved by the state insurance department, a DCA fixed account
investment option may be established under the DCA program to make automatic
transfers. Only purchase payments (and not existing contract values) may be
allocated to the DCA fixed account investment option. The DCA program is
generally suitable if you are making a substantial deposit and desire to control
the risk of investing at the top of a market cycle. The DCA program allows
investments to be made in equal installments over time in an effort to reduce
that risk. If you are interested in the DCA program, you may elect to
participate in the program on the application or by separate application. You
may obtain a separate application and full information concerning the program
and its restrictions from your securities dealer or our Annuity Service Office.
There is no charge for participation in the DCA program.
ASSET REBALANCING PROGRAM
We administer an Asset Rebalancing Program which enables you to specify
the percentage levels you would like to maintain in particular portfolios. Your
contract value will be automatically rebalanced pursuant to the schedule
described below to maintain the indicated percentages by transfers among the
portfolios. (The Fixed Account Investment Options are not eligible for
participation in the Asset Rebalancing Program.) The entire value of the
variable investment accounts must be included in the Asset Rebalancing Program.
Other investment programs, such as the DCA program, or other transfers or
withdrawals may not work in concert with the Asset Rebalancing Program.
Therefore, you should monitor your use of these other programs and any other
transfers or withdrawals while the Asset Rebalancing Program is being used. If
you are interested in the Asset Rebalancing Program, you may obtain a separate
application and full information concerning the program and its restrictions
from your securities dealer or our Annuity Service Office. There is no charge
for participation in the Asset Rebalancing Program.
Asset rebalancing will only be permitted on the following time
schedules:
- - quarterly on the 25th day of the last month of the quarter (or the next
business day if the 25th is not a business day);
- - semi-annually on June 25th or December 26th (or the next business day
if these dates are not business days); or
- - annually on December 26th (or the next business day if December 26th is
not a business day).
WITHDRAWALS
During the accumulation period, you may withdraw all or a portion of
your contract value upon written request (complete with all necessary
information) to our Annuity Service Office. You may make withdrawals by
telephone if you have authorized telephone withdrawals, as described above
under "Telephone Transactions." For certain qualified contracts, exercise of
the withdrawal right may require the consent of the qualified plan
participant's spouse under the Internal Revenue Code of 1986, as amended (the
"CODE") and related Treasury Department regulations. In the case of a total
withdrawal, we will pay the contract value as of the date of receipt of the
request at our Annuity Service Office, less the annual $30 administration fee
if applicable, any unpaid loans and any applicable withdrawal charge, and the
contract will be canceled. In the case of a partial withdrawal, we will pay
the amount requested and cancel that number of accumulation units credited to
each investment account equal in value to the amount withdrawn from that
investment account plus any applicable withdrawal charge deducted from such
investment account (see "CHARGES AND DEDUCTIONS").
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You may withdraw all or a portion of your contract value, but may incur
withdrawal charges and a tax liability as a result.
When making a partial withdrawal, you should specify the investment
options from which the withdrawal is to be made. The amount requested from an
investment option may not exceed the value of that investment option less any
applicable withdrawal charge. If you do not specify the investment options from
which a partial withdrawal is to be taken, the withdrawal will be taken from the
variable account investment options until exhausted and then from the fixed
account investment options. If the partial withdrawal is less than the total
value in the variable account investment options, the withdrawal will be taken
pro rata from the variable account investment options: taking from each such
variable account investment option an amount which bears the same relationship
to the total amount withdrawn as the value of that variable account investment
option bears to the value of all your investments in variable account investment
options. For rules governing the order and manner of withdrawals from the fixed
account investment options (see "FIXED ACCOUNT INVESTMENT OPTIONS").
There is no limit on the frequency of partial withdrawals; however, the
amount withdrawn must be at least $300 or, if less, the entire balance in the
investment option. If after the withdrawal (and deduction of any withdrawal
charge) the amount remaining in the investment option is less than $100, we will
treat the partial withdrawal as a withdrawal of the entire amount held in the
investment option. If a partial withdrawal plus any applicable withdrawal charge
would reduce the contract value to less than $300, we will treat the partial
withdrawal as a total withdrawal of the contract value.
The amount of any withdrawal from the variable account investment
options will be paid promptly, and in any event within seven days of receipt of
the request, complete with all necessary information at our Annuity Service
Office, except that we reserve the right to defer the right of withdrawal or
postpone payments for any period when:
- - the New York Stock Exchange is closed (other than customary weekend and
holiday closings),
- - trading on the New York Stock Exchange is restricted,
- - an emergency exists as a result of which disposal of securities held in
the Variable Account is not reasonably practicable or it is not
reasonably practicable to determine the value of the Variable Account's
net assets, or
- - the SEC, by order, so permits for the protection of security holders;
provided that applicable rules and regulations of the SEC shall govern
as to whether trading is restricted or an emergency exists.
Withdrawals from the contract may be subject to income tax and a 10%
penalty tax. Withdrawals are permitted from contracts issued in connection with
Section 403(b) qualified plans only under limited circumstances. (see "FEDERAL
TAX MATTERS").
SPECIAL WITHDRAWAL SERVICES - THE INCOME PLAN
Systematic "Income Plan" withdrawals are available.
We administer an Income Plan ("IP") which permits you to pre-authorize
a periodic exercise of the contractual withdrawal rights described above. After
entering into an IP agreement, you may instruct us to withdraw a level dollar
amount from specified investment options on a periodic basis. The total of IP
withdrawals in a contract year is limited to not more than 10% of the purchase
payments made (to ensure that no withdrawal charge will ever apply to an IP
withdrawal). If an additional withdrawal is made from a contract participating
in an IP, the IP will terminate automatically and may be reinstated only on or
after the next contract anniversary pursuant to a new application. The IP is not
available to contracts participating in the dollar cost averaging program or for
which purchase payments are being automatically deducted from a bank account on
a periodic basis. IP withdrawals will be free of withdrawal charges. IP
withdrawals, like other withdrawals, may be subject to income tax and a 10%
penalty tax (see "FEDERAL TAX MATTERS"). If you are interested in an IP, you may
obtain a separate application and full information concerning the program and
its restrictions from your securities dealer or our Annuity Service Office.
There is no charge for participation in the IP program.
LOANS
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Some qualified contracts have a loan feature.
We offer a loan privilege only to owners of contracts issued in
connection with Section 403(b) qualified plans that are not subject to Title I
of ERISA. If you are not an owner of such a contract, none of this discussion
about loans applies to your contract. If you are an owner of such a contract,
you may borrow from us, using your contract as the only security for the loan.
Loans are subject to certain tax law restrictions and to applicable retirement
program rules (collectively, "LOAN RULES"). You should consult your tax advisor
and retirement plan fiduciary prior to taking a loan under the contract.
The maximum loan value of a contract is normally 80% of the contract
value, although loan rules may serve to reduce that maximum in some cases. The
amount available for a loan at any given time is the loan value less any unpaid
prior loans. Unpaid prior loans equal the amount of any prior loans plus
interest accrued on those loans. Loans will be made only upon written request
from the owner. We will make loans within seven days of receiving a properly
completed loan application (applications are available from our Annuity Service
Office), subject to postponement under the same circumstances that payment of
withdrawals may be postponed (see "WITHDRAWALS").
When you request a loan, we will reduce your investment in the
investment accounts and transfer the amount of the loan to the "LOAN ACCOUNT," a
part of our general account. You may designate the investment accounts from
which the loan is to be withdrawn. Absent such a designation, the amount of the
loan will be withdrawn from the investment accounts in accordance with the rules
for making partial withdrawals (see "WITHDRAWALS"). The contract provides that
you may repay unpaid loans at any time. Under applicable loan rules, loans
generally must be repaid within five years, repayments must be made at least
quarterly and repayments must be made in substantially equal amounts. When a
loan is repaid, the amount of the repayment will be transferred from the loan
account to the investment accounts. You may designate the investment accounts to
which a repayment is to be allocated. Otherwise, the repayment will be allocated
in the same manner as your most recent purchase payment. On each contract
anniversary, we will transfer from the investment accounts to the loan account
the excess of the balance of your loan over the balance in your loan account.
We charge interest of 6% per year on contract loans. Loan interest is
payable in arrears and, unless paid in cash, the accrued loan interest is added
to the amount of the debt and bears interest at 6% as well. We credit interest
with respect to amounts held in the loan account at a rate of 4% per year.
Consequently, the net cost of loans under the contract is 2%. If on any date
unpaid loans under your contract exceed your contract value, your contract will
be in default. In such case you will receive a notice indicating the payment
needed to bring your contract out of default and will have a thirty-one day
grace period within which to pay the default amount. If the required payment is
not made within the grace period, your contract may be terminated without value.
The amount of any unpaid loans will be deducted from the death benefit
otherwise payable under the contract. In addition, loans, whether or not repaid,
will have a permanent effect on the contract value because the investment
results of the investment accounts will apply only to the unborrowed portion of
the contract value. The longer a loan is unpaid, the greater the effect is
likely to be. The effect could be favorable or unfavorable. If the investment
results are greater than the rate being credited on amounts held in your loan
account while your loan is unpaid, your contract value will not increase as
rapidly as it would have if no loan were unpaid. If investment results are below
that rate, your contract value will be greater than it would have been had no
loan been outstanding.
DEATH BENEFIT DURING THE ACCUMULATION PERIOD
If you die during the accumulation period, your beneficiary will receive a death
benefit that might exceed your contract value.
IN GENERAL. The following discussion applies principally to contracts
that are not issued in connection with qualified plans, i.e., "NON-QUALIFIED
CONTRACTS." Tax law requirements applicable to qualified plans, and the tax
treatment of amounts held and distributed under such plans, are quite complex.
Accordingly, if your contract is to be used in connection with a qualified plan,
you should seek competent legal and tax advice regarding the suitability of the
contract for the situation involved and the requirements governing the
distribution of benefits, including death benefits, from a contract used in the
plan. In particular, if you intend to use the contract in connection with a
qualified plan, you should consider that the contract provides a death benefit
(described below) that could be characterized as an "incidental death benefit."
There are limits on the amount of incidental benefits that may be provided under
certain qualified plans and the provision of such benefits may result in
currently taxable income to plan participants (see "FEDERAL TAX MATTERS").
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AMOUNT OF DEATH BENEFIT. If any contract owner dies, the death benefit
will be determined as follows:
- - The death benefit during the first nine contract years will be the
greater of:
(a) the contract value less any payments enhancements applied in
the 12 month period prior to the date of death, or
(b) the excess of
- the sum of all purchase payments over
- the sum of any partial withdrawals.
- - After the ninth contract year, the death benefit will be the greater
of:
(a) the contract value less any payment enhancements applied in
the 12 month period prior to the date of death, or
(b) the excess of
- the sum of all purchase payments over
- the sum of any amounts deducted in connection with
partial withdrawals or
(c) the death benefit on the last day of the ninth contract year,
plus the sum of all purchase payments made and any amount
deducted in connection with partial withdrawals since then.
Reference to "payment enhancements" in this paragraph refers to the original
amount of payment enhancements; earnings attributable to payment enhancements
will not be deducted from the death benefit paid.
The determination of the death benefit will be made on the date we
receive written notice and "proof of death" as well as all required claims
forms, at our Annuity Service Office. No one is entitled to the death benefit
until this time. Death benefits will be paid within 7 days of that
determination. Proof of death occurs when we receive one of the following at our
Annuity Service Office within one year of the date of death:
- a certified copy of a death certificate;
- a certified copy of a decree of a court of competent
jurisdiction as to the finding of death; or
- any other proof satisfactory to us.
If there are any unpaid loans, the death benefit equals the death benefit, as
described above, minus the amount of unpaid loans (including unpaid interest).
PAYMENT OF DEATH BENEFIT. We will pay the death benefit to the
beneficiary if any contract owner dies before the maturity date. If there is a
surviving contract owner, that contract owner will be deemed to be the
beneficiary. No death benefit is payable on the death of any annuitant, except
that if any contract owner is not a natural person, the death of any annuitant
will be treated as the death of an owner. On the death of the last surviving
annuitant, the contract owner, if a natural person, will become the annuitant
unless the contract owner designates another person as the annuitant.
The death benefit may be taken in the form of a lump sum immediately.
If not taken immediately, the contract will continue subject to the following:
- The beneficiary will become the contract owner.
- Any excess of the death benefit over the contract value will
be allocated to the owner's investment accounts in proportion
to their relative values on the date of receipt at our Annuity
Service Office of due proof of the owner's death.
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- No additional purchase payments may be made.
- If the owner's spouse is the beneficiary, the spouse continues
the contract as the new owner. In such a case, the
distribution rules applicable when a contract owner dies will
apply when the spouse, as the owner, dies. In addition, a
death benefit will be paid upon the death of the spouse. For
purposes of calculating the death benefit payable upon the
death of the spouse, the death benefit paid upon the first
owner's death will be treated as a purchase payment to the
contract. In addition, all payments made and all amounts
deducted in connection with partial withdrawals prior to the
date of the first owner's death will not be considered in the
determination of the spouse's death benefit.
- If the owner's spouse is the beneficiary, the spouse continues
the contract as the new owner. In such a case, the
distribution rules applicable when a contract owner dies will
apply when the spouse, as the owner, dies.
- If any contract owner dies and the oldest owner had an
attained age of less than 81 on the contract date, withdrawal
charges are not applied on payment of the death benefit
(whether taken through a partial or total withdrawal or
applied under an annuity option). If any contract owner dies
and the oldest owner had an attained age greater than 80 on
the date as of which the contract was issued, any applicable
withdrawal charges will be assessed only upon payment of the
death benefit (so that if the death benefit is paid in a
subsequent year, a lower withdrawal charge will be applicable)
If any annuitant is changed and any contract owner is not a natural
person, the entire interest in the contract must be distributed to the contract
owner within five years.
A substitution or addition of any contract owner may result in
resetting the death benefit to an amount equal to the contract value as of the
date of the change. For purposes of subsequent calculations of the death benefit
prior to the maturity date, the contract value on the date of the change will be
treated as a payment made on that date. This treatment of contract value as a
payment is not included in cumulative purchase payments and is not eligible for
a payment enhancement. In addition, all payments made and all amounts deducted
in connection with partial withdrawals prior to the date of the change will not
be considered in the determination of the death benefit. No such change in death
benefit will be made if the person whose death will cause the death benefit to
be paid is the same after the change in ownership or if ownership is transferred
to the owner's spouse.
Death benefits will be paid within seven days of the date the amount of
the death benefit is determined, as described above, subject to postponement
under the same circumstances that payment of withdrawals may be postponed (see
"WITHDRAWALS").
PAY-OUT PERIOD PROVISIONS
GENERAL
You have a choice of several different ways of receiving annuity benefit
payments from us.
The proceeds of the contract payable on death, withdrawal or the
contract maturity date may be applied to the annuity options described below,
subject to the distribution of death benefit provisions (see "DEATH BENEFIT
DURING THE ACCUMULATION PERIOD").
Generally, we will begin paying annuity benefits under the contract on
the contract's maturity date (the date dividing the accumulation period from the
pay-out period). The maturity date is the date specified on the contract
specifications page, unless you change that date. If no date is specified, the
maturity date is the maximum maturity date described below. The maximum maturity
date is the first day of the month following the later of the 85th birthday of
the annuitant or the tenth contract anniversary. See APPENDIX D for contracts
issued in Pennsylvania. You may specify a different maturity date at any time by
written request at least one month before both the previously specified and the
new maturity date. The new maturity date may not be later than the maximum
maturity date unless we consent. Maturity dates which occur at advanced ages,
e.g., past age 85, may in some circumstances have adverse income tax
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consequences (see "FEDERAL TAX MATTERS"). Distributions from qualified contracts
may be required before the maturity date.
You may select the frequency of annuity payments. However, if the
contract value at the maturity date is such that a monthly payment would be less
than $20, we may pay the contract value, minus any unpaid loans, in one lump sum
to the annuitant on the maturity date.
ANNUITY OPTIONS
Annuity benefit payments are available under the contract on a fixed,
variable, or combination fixed and variable basis. Upon purchase of the
contract, and at any time during the accumulation period, you may select one or
more of the annuity options described below on a fixed and/or variable basis
(except Option 5 which is available on a fixed basis only) or choose an
alternate form of payment acceptable to us. If an annuity option is not
selected, we will provide as a default option a life annuity with payments
guaranteed for 10 years as described below. Annuity payments will be determined
based on the Investment Account Value of each investment option at the maturity
date.
Treasury Department regulations may preclude the availability of
certain annuity options in connection with certain qualified contracts.
The following annuity options are guaranteed in the contract. Please
read the description of each annuity option carefully. In general, a nonrefund
life annuity provides the highest level of payments. However, because there is
no guarantee that any minimum number of payments will be made, an annuitant may
receive only one payment if the annuitant dies prior to the date the second
payment is due. Annuities with payments guaranteed for a certain number of years
may also be elected but the amount of each payment will be lower than that
available under the nonrefund life annuity option.
OPTION 1(a): NON-REFUND LIFE ANNUITY - An annuity with payments during the
lifetime of the annuitant. No payments are due after the death of the annuitant.
Because there is no guarantee that any minimum number of payments will be made,
an annuitant may receive only one payment if the annuitant dies prior to the
date the second payment is due.
OPTION 1(b): LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 YEARS - An annuity
with payments guaranteed for 10 years and continuing thereafter during the
lifetime of the annuitant. Because payments are guaranteed for 10 years, annuity
payments will be made to the end of such period if the annuitant dies prior to
the end of the tenth year.
OPTION 2(a): JOINT & SURVIVOR NON-REFUND LIFE ANNUITY - An annuity with payments
during the lifetimes of the annuitant and a designated co-annuitant. No payments
are due after the death of the last survivor of the annuitant and co-annuitant.
Because there is no guarantee that any minimum number of payments will be made,
an annuitant or co-annuitant may receive only one payment if the annuitant and
co-annuitant die prior to the date the second payment is due.
OPTION 2(b): JOINT & SURVIVOR LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 YEARS
- - An annuity with payments guaranteed for 10 years and continuing thereafter
during the lifetimes of the annuitant and a designated co-annuitant. Because
payments are guaranteed for 10 years, annuity payments will be made to the end
of such period if both the annuitant and the co-annuitant die prior to the end
of the tenth year.
In addition to the foregoing annuity options which we are contractually
obligated to offer at all times, we currently offer the following annuity
options. We may cease offering the following annuity options at any time and may
offer other annuity options in the future.
OPTION 3: LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 5, 15 OR 20 YEARS - An
Annuity with payments guaranteed for 5, 15 or 20 years and continuing thereafter
during the lifetime of the annuitant. Because payments are guaranteed for the
specific number of years, annuity payments will be made to the end of the last
year of the 5, 15 or 20 year period.
OPTION 4: JOINT & TWO-THIRDS SURVIVOR NON-REFUND LIFE ANNUITY - An annuity with
full payments during the joint lifetime of the annuitant and a designated
co-annuitant and two-thirds payments during the
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lifetime of the survivor. Because there is no guarantee that any minimum number
of payments will be made, an annuitant or co-annuitant may receive only one
payment if the annuitant and co-annuitant die prior to the date the second
payment is due.
OPTION 5: PERIOD CERTAIN ONLY ANNUITY FOR 5, 10, 15 OR 20 YEARS - An annuity
with payments for a 5, 10, 15 or 20 year period and no payments thereafter.
DETERMINATION OF AMOUNT OF THE FIRST VARIABLE ANNUITY BENEFIT PAYMENT
The first variable annuity payment is determined by applying that
amount of the contract value used to purchase a variable annuity to the annuity
tables contained in the contract. The amount of the contract value will be
determined as of a date not more than ten business days prior to the maturity
date. The amount of the first and all subsequent fixed annuity payments is
determined on the same basis using the portion of the contract value used to
purchase a fixed annuity. Contract value used to determine annuity payments will
be reduced by any applicable premium taxes.
The rates contained in the annuity tables vary with the annuitant's sex
and age and the annuity option selected. However, for contracts issued in
connection with certain employer-sponsored retirement plans sex-distinct tables
may not be used. Under such tables, the longer the life expectancy of the
annuitant under any life annuity option or the longer the period for which
payments are guaranteed under the option, the smaller the amount of the first
monthly variable annuity payment will be.
ANNUITY UNITS AND THE DETERMINATION OF SUBSEQUENT VARIABLE ANNUITY BENEFIT
PAYMENTS
Variable annuity benefit payments subsequent to the first will be based
on the investment performance of the sub-accounts selected during the pay-out
period. The amount of subsequent payments is determined by dividing the amount
of the first annuity payment from each sub-account by the annuity unit value of
that sub-account (as of the same date the contract value to effect the annuity
was determined) to establish the number of annuity units which will thereafter
be used to determine payments. This number of annuity units for each sub-account
is then multiplied by the appropriate annuity unit value as of a uniformly
applied date not more than ten business days before the annuity payment is due,
and the resulting amounts for each sub-account are then totaled to arrive at the
amount of the payment to be made. The number of annuity units remains constant
during the annuity benefit payment period.
The value of an annuity unit for each sub-account for any valuation
period is determined by multiplying the annuity unit value for the immediately
preceding valuation period by the net investment factor for that sub-account
(see "NET INVESTMENT FACTOR") for the valuation period for which the annuity
unit value is being calculated and by a factor to neutralize the assumed
interest rate.
A 3% assumed interest rate is built into the annuity tables in the
contract used to determine the first variable annuity payment.
TRANSFERS DURING THE PAY-OUT PERIOD
Some transfers are permitted during the pay-out period, but subject to a few
more limitations than during the accumulation period.
Once variable annuity benefit payments have begun, you may transfer all
or part of the investment upon which those payments are based from one
sub-account to another. You must submit your transfer request to our Annuity
Service Office at least 30 days before the due date of the first annuity benefit
payment to which your transfer will apply. Transfers after the maturity date
will be made by converting the number of annuity units being transferred to the
number of annuity units of the sub-account to which the transfer is made, so
that the next annuity payment if it were made at that time would be the same
amount that it would have been without the transfer. Thereafter, annuity benefit
payments will reflect changes in the value of the new annuity units. We reserve
the right to limit, upon notice, the maximum number of transfers to four per
contract year. Once annuity payments have commenced, no transfers may be made
from a fixed annuity option to a variable annuity option or from a variable
annuity option to a fixed annuity option. In addition, we reserve the right to
defer the transfer privilege at any time that we are unable to purchase or
redeem shares of the Trust portfolios. We also reserve the right to modify or
terminate the transfer privilege at any time in accordance with applicable law.
DEATH BENEFIT DURING THE PAY-OUT PERIOD
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If an annuity option providing for payments for a guaranteed period has
been selected, and the annuitant dies during the pay-out period, we will make
the remaining guaranteed payments to the beneficiary. Any remaining payments
will be made as rapidly as under the method of distribution being used as of the
date of the annuitant's death. If no beneficiary is living, we will commute any
unpaid guaranteed payments to a single sum (on the basis of the interest rate
used in determining the payments) and pay that single sum to the estate of the
last to die of the annuitant and the beneficiary.
OTHER CONTRACT PROVISIONS
TEN DAY RIGHT TO REVIEW
You have a ten-day right to cancel your contract.
You may cancel the contract by returning it to our Annuity Service
Office or agent at any time within 10 days after receiving it. Within 7 days of
receiving a returned contract, we will pay you the contract value (minus any
unpaid loans and any payment enhancement), computed at the end of the valuation
period during which we receive the returned contract. We will recover the
original amount of the payment enhancement credited; earnings attributable to
the payment enhancement will not be deducted from the amount paid. The amount
returned to you if you cancel your contract as described above will always be
more than your contract value (minus any unpaid loans) less the maximum
withdrawal charge.
No withdrawal charge is imposed upon return of the contract within the
ten-day right to review period. The ten-day right to review may vary in certain
states in order to comply with the requirements of state insurance laws and
regulations. When the contract is issued as an individual retirement annuity
under the Code Sections 408 or 408A, during the first 7 days of the 10 day
period, we will return all purchase payments if this is greater than the amount
otherwise payable.
OWNERSHIP
You, are entitled to exercise all rights under your contract.
The contract owner is the person entitled to exercise all rights under
the contract. Prior to the maturity date, the contract owner is the person
designated in the contract specifications page or as subsequently named. During
the pay-out period, the annuitant is the contract owner. If amounts become
payable to any beneficiary under the contract, the beneficiary is the contract
owner.
In the case of non-qualified contracts, ownership of the contract may
be changed or the contract may be collaterally assigned at any time prior to the
maturity date, subject to the rights of any irrevocable beneficiary. Assigning a
contract, or changing the ownership of a contract, may be treated as a
(potentially taxable) distribution of the contract value for federal tax
purposes (see "FEDERAL TAX MATTERS"). A change of any contract owner may result
in resetting the death benefit to an amount equal to the contract value as of
the date of the change and treating such value as a purchase payment made on
that date for purposes of computing the amount of the death benefit. This
purchase payment will not be included in cumulative purchase payments and is not
eligible for a payment enhancement.
Any change of ownership or assignment must be made in writing. We must
approve any change. Any assignment and any change, if approved, will be
effective as of the date we receive the request at our Annuity Service Office.
We assume no liability for any payments made or actions taken before a change is
approved or an assignment is accepted or responsibility for the validity or
sufficiency of any assignment. An absolute assignment will revoke the interest
of any revocable beneficiary.
In the case of qualified contracts, ownership of the contract generally
may not be transferred except by the trustee of an exempt employees' trust which
is part of a retirement plan qualified under Section 401 of the Code or as
otherwise permitted by applicable Internal Revenue Service ("IRS") regulations.
Subject to the foregoing, a qualified contract may not be sold, assigned,
transferred, discounted or pledged as collateral for a loan or as security for
the performance of an obligation or for any other purpose to any person other
than us.
ANNUITANT
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The "annuitant" is either you or someone you designate.
The annuitant is any natural person or persons whose life is used to
determine the duration of annuity payments involving life contingencies. If the
contract owner names more than one person as an "annuitant," the second person
named shall be referred to as "CO-ANNUITANT." The annuitant is as designated on
the contract specifications page or in the application, unless changed.
On the death of the annuitant, the co-annuitant, if living, becomes the
annuitant. If there is no living co-annuitant, the owner becomes the annuitant.
In the case of certain qualified contracts, there are limitations on the ability
to designate and change the annuitant and the co-annuitant.
BENEFICIARY
The "beneficiary" is the person you designate to receive the death benefit if
you die.
The beneficiary is the person, persons or entity designated in the
contract specifications page (or as subsequently changed). However, if there is
a surviving contract owner, that person will be treated as the beneficiary. The
beneficiary may be changed subject to the rights of any irrevocable beneficiary.
Any change must be made in writing, approved by us, and (if approved) will be
effective as of the date on which written. We assume no liability for any
payments made or actions taken before the change is approved. If no beneficiary
is living, the contingent beneficiary will be the beneficiary. The interest of
any beneficiary is subject to that of any assignee. If no beneficiary or
contingent beneficiary is living, the beneficiary is the estate of the deceased
contract owner. In the case of certain qualified contracts, Treasury Department
regulations may limit designations of beneficiaries.
MODIFICATION
We may not modify your contract without your consent, except to the
extent required to make it conform to any law or regulation or ruling issued by
a governmental agency. The provisions of the contract shall be interpreted so as
to comply with the requirements of Section 72(s) of the Code.
COMPANY APPROVAL
We reserve the right to accept or reject any contract application at
our sole discretion.
MISSTATEMENT AND PROOF OF AGE, SEX OR SURVIVAL
We may require proof of age, sex or survival of any person upon whose
age, sex or survival any payment depends. If the age or sex of the annuitant has
been misstated, the benefits will be those that would have been provided for the
annuitant's correct age and sex. If we have made incorrect annuity payments, the
amount of any underpayment will be paid immediately and the amount of any
overpayment will be deducted from future annuity payments.
FIXED ACCOUNT INVESTMENT OPTIONS (NOT AVAILABLE IN OREGON)
The fixed account investment options are not securities.
SECURITIES REGISTRATION. Due to certain exemptive and exclusionary
provisions, interests in the fixed account investment options are not registered
under the Securities Act of 1933, as amended, (the "1933 Act") and our general
account is not registered as an investment company under the 1940 Act.
Accordingly, neither interests in the fixed account investment options nor the
general account are subject to the provisions or restrictions of the 1933 Act or
the 1940 Act and the staff of the SEC has not reviewed the disclosures in the
Prospectus relating thereto. Disclosures relating to interests in the fixed
account investment options and the general account, however, may be subject to
certain generally applicable provisions of the Federal securities laws relating
to the accuracy of statements made in a registration statement.
GUARANTEE. Pursuant to a Guarantee Agreement dated March 31, 1996,
Manulife, our ultimate parent, unconditionally guarantees to us, on behalf of
and for the benefit of us and owners of fixed annuity contracts we issue, that
it will, on demand, make funds available to us for the timely payment of
contractual claims under fixed annuity contracts issued after June 27, 1984.
This Guarantee covers the fixed portion of the contracts described in this
Prospectus. This Guarantee may be terminated by Manulife on notice to us.
Termination will not affect Manulife's continuing liability with respect to all
fixed annuity contracts issued prior to the termination of the Guarantee except
if:
- the liability to pay contractual claims under the contracts is
assumed by another insurer, or
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- we are sold and the buyer's guarantee is substituted for the
Manulife guarantee.
REINSURANCE. Effective June 30, 1995, we entered into a Reinsurance
Agreement with Peoples Security Life Insurance Company ("PEOPLES") pursuant to
which Peoples reinsures certain amounts with respect to the fixed account
portion of the contract described in this Prospectus issued prior to January 1,
1999. Under this Reinsurance Agreement, we remain liable for the contractual
obligations of the contracts' fixed accounts and Peoples agrees to reimburse us
for certain amounts and obligations in connection with the fixed accounts.
Peoples contractual liability runs solely to us, and no contract owner shall
have any right of action against Peoples. For contract issued after January 1,
1999, The Manufacturers Life Insurance Company (U.S.A.) reinsures certain
amounts with respect to the fixed account portion of the contract under a
reinsurance agreement with substantial similar terms to the Peoples Reinsurance
Agreement.
Fixed account investment options guarantee interest of at least 3%.
INVESTMENT OPTIONS. A one-year fixed account investment option is
available under the contract. In addition, a DCA fixed investment account may be
established under the DCA program to make automatic transfers to one or more
variable investment options (see "SPECIAL TRANSFER SERVICES-DOLLAR COST
AVERAGING" for details). Under the fixed account investment options, we
guarantee the principal value of purchase payments and the rate of interest
credited to the investment account for the term of the guarantee period. The
portion of the contract value in a fixed account investment option and any fixed
annuity benefit payments will reflect those interest and principal guarantees.
We determine the guaranteed interest rates on new amounts allocated or
transferred to a fixed investment account from time-to-time, according to market
conditions. In no event will the guaranteed rate of interest be less than 3%.
Once an interest rate is guaranteed for a fixed investment account, it is
guaranteed for the duration of the guarantee period and we may not change it.
INVESTMENT ACCOUNTS. You may allocate purchase payments, or make
transfers from the variable investment options, to the one-year fixed account
investment option at any time prior to the maturity date. We establish a
separate investment account each time you allocate or transfer amounts to the
one-year fixed account investment option. Amounts may not be allocated to a
fixed account investment option that would extend the guarantee period beyond
the maturity date.
RENEWALS. At the end of a guarantee period, you may establish a new
investment account with a one-year guarantee period at the then current interest
rate or transfer the amounts to a variable account investment option, all
without the imposition of any charge. In the case of renewals within one year of
the maturity date, the only fixed account investment option available is to have
interest accrued up to the maturity date at the then current interest rate for
one-year guarantee periods. If you do not specify a renewal option, we will
select the one-year fixed account investment option. In the case of a renewal
within one year of the maturity date, we will credit interest up to the maturity
date at the then current interest rate for one-year guarantee periods.
TRANSFERS. During the accumulation period, you may transfer amounts
from the fixed account investment option to the variable account investment
options at the end of the guaranteed period; however, amounts may be transferred
prior to the end of the guarantee period pursuant to the DCA program. Where
there are multiple investment accounts within the one-year fixed account
investment option, amounts must be transferred from the one-year fixed account
investment option on a first-in-first-out basis.
Withdrawals and some transfers from fixed account investment options are
permitted during the accumulation period.
WITHDRAWALS. You may make total and partial withdrawals of amounts held
in the fixed account investment options at any time during the accumulation
period. Withdrawals from the fixed account investment options will be made in
the same manner and be subject to the same limitations as set forth under
"WITHDRAWALS" plus the following provisions also apply to withdrawals from the
fixed account investment options:
- We reserve the right to defer payment of amounts withdrawn
from the fixed account investment options for up to six months
from the date we receive the written withdrawal request. If a
withdrawal is deferred for more than 30 days pursuant to this
right, we will pay interest on the amount deferred at a rate
not less than 3% per year (or a higher rate if required by
applicable law).
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- If there are multiple investment accounts under the fixed
account investment options, amounts must be withdrawn from
those accounts on a first-in-first-out basis.
If you do not specify the investment options from which a partial
withdrawal is to be taken, the partial withdrawal will be taken from the
variable account investment options until exhausted and then from the fixed
account investment options. Such withdrawals will be made from the investment
options beginning with the shortest guarantee period. Within such a sequence,
where there are multiple investment accounts within a fixed account investment
option, withdrawals will be made on a first-in-first-out basis. For this
purpose, the DCA fixed account investment option is considered to have a shorter
guarantee period than the one-year fixed account investment option.
Withdrawals from the contract may be subject to income tax and a 10%
penalty tax. Withdrawals are permitted from contracts issued in connection with
Section 403(b) qualified plans only under limited circumstances (see "FEDERAL
TAX MATTERS" below).
LOANS. We offer a loan privilege only to owners of contracts issued in
connection with Section 403(b) qualified plans that are not subject to Title I
of ERISA. If you own such a contract, you may borrow from us, using your
contract as the only security for the loan, in the same manner and subject to
the same limitations as set forth under "LOANS" above.
FIXED ANNUITY OPTIONS. Subject to the distribution of death benefits
provisions (see "DEATH BENEFIT DURING THE ACCUMULATION PERIOD" above), on death,
withdrawal or the maturity date of the contract, the proceeds may be applied to
a fixed annuity option (see "ANNUITY OPTIONS" above). The amount of each fixed
annuity payment is determined by applying the portion of the proceeds (minus any
applicable premium taxes) applied to purchase the fixed annuity to the
appropriate table in the contract. If the table we are then using is more
favorable to you, we will substitute that table. We guarantee the dollar amount
of fixed annuity payments.
CHARGES AND DEDUCTIONS
Charges and deductions under the contracts are assessed against
purchase payments, contract values or annuity payments. Currently, there are no
deductions made from purchase payments, except for premium taxes in certain
states. In addition, there are deductions from and expenses paid out of the
assets of the Trust portfolios that are described in the accompanying Prospectus
of the Trust.
WITHDRAWAL CHARGES
A charge of up to 8-1/2% is deducted from some withdrawals.
If you make a withdrawal from your contract during the accumulation
period, a withdrawal charge (contingent deferred sales charge) may be assessed
against amounts withdrawn attributable to purchase payments that have been in
the contract less than ten complete contract years. There is never a withdrawal
charge with respect to earnings accumulated in the contract, certain other free
withdrawal amounts described below or purchase payments that have been in the
contract more than ten complete contract years. In no event may the total
withdrawal charges exceed 8.5% of the amount invested. The amount of the
withdrawal charge and when it is assessed are discussed below:
Each withdrawal from the contract is allocated first to the "FREE
WITHDRAWAL AMOUNT" and second to "UNLIQUIDATED PURCHASED PAYMENTS." In any
contract year, the free withdrawal amount for that year is the greater of:
- 10% of total purchase payments (less all prior partial
withdrawals in that contract year), and
- the accumulated earnings of the contract (i.e., the excess of
the contract value on the date of withdrawal over the
unliquidated purchase payments).
Withdrawals of up to the free withdrawal amount may be withdrawn without the
imposition of a withdrawal charge. The free withdrawal amount will be applied
first, to withdrawals from variable account investment options and then to
withdrawals from the one-year fixed account investment option.
If the amount of a withdrawal exceeds the free withdrawal amount, the
excess will be allocated to purchase payments which will be "liquidated" on a
first-in first-out basis. On any withdrawal request, we
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will liquidate purchase payments equal to the amount of the withdrawal request
which exceeds the free withdrawal amount in the order the purchase payments were
made: the oldest unliquidated purchase payment first, the next purchase payment
second, etc., until all purchase payments have been liquidated.
Each purchase payment (or portion thereof) liquidated in connection
with a withdrawal request is subject to a withdrawal charge based on the length
of time the purchase payment has been in the contract. The amount of the
withdrawal charge is calculated by multiplying the amount of the purchase
payment being liquidated by the applicable withdrawal charge percentage obtained
from the table below.
<TABLE>
<CAPTION>
NUMBER OF COMPLETE YEARS
PURCHASE PAYMENT IN CONTRACT WITHDRAWAL CHARGE PERCENTAGE
<S> <C>
0 8.5%
1 8.5%
2 8.0%
3 7.0%
4 6.0%
5 5.0%
6 4.0%
7 3.0%
8 2.0%
9+ 0.0%
</TABLE>
The total withdrawal charge will be the sum of the withdrawal charges
for the purchase payments being liquidated.
The withdrawal charge is deducted from the contract value remaining
after the contract owner is paid the amount requested, except in the case of a
complete withdrawal when it is deducted from the amount otherwise payable. In
the case of a partial withdrawal, the amount requested from an investment
account may not exceed the value of that investment account minus any applicable
withdrawal charge.
There is generally no withdrawal charge on distributions made as a
result of the death of the contract owner or, if applicable, the annuitant. In
addition, no withdrawal charges are imposed on annuity benefit payments.
The amount collected from the withdrawal charge will be used to
reimburse us for the compensation we pay to broker-dealers for selling the
contracts, preparation of sales literature and other sales-related expenses.
For examples of calculation of the withdrawal charge, see APPENDIX B.
REDUCTION OR ELIMINATION OF WITHDRAWAL CHARGES
The amount of the withdrawal charge on a contract may be reduced or
eliminated when sales of the contracts are made to individuals or to a group of
individuals in such a manner that results in savings of sales expenses. We will
determine entitlement to such a reduction in the withdrawal charge in the
following manner:
- The size and type of group to which sales are to be made will
be considered. Generally, sales expenses for a larger group
are smaller than for a smaller group because of the ability to
implement large numbers of contracts with fewer sales
contacts.
- The total amount of purchase payments to be received will be
considered. Per-dollar sales expenses are likely to be less on
larger purchase payments than on smaller ones.
- Any prior or existing relationship with us will be considered.
Per-contract sales expenses are likely to be less when there
is a prior or existing relationship because of the likelihood
of implementing the contract with fewer sales contacts.
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- The level of commissions paid to selling broker-dealers will
be considered. Certain broker-dealers may offer the contract
in connection with financial planning programs offered on a
fee-for-service basis. In view of the financial planning fees,
such broker-dealers may elect to receive lower commissions for
sales of the contracts, thereby reducing our sales expenses.
- There may be other circumstances of which we are not presently
aware, which could result in reduced sales expenses.
If, after consideration of the foregoing factors, we determine that
there will be a reduction in sales expenses, we will provide a reduction in the
withdrawal charge. In no event will reduction or elimination of the withdrawal
charge be permitted where that reduction or elimination will be unfairly
discriminatory to any person. For further information, contact your registered
representative.
ADMINISTRATION FEES
Two fees may be deducted under a contract to compensate us for our
costs of providing all administrative services attributable to the contracts and
the operations of the Variable Account:
Normally, we will deduct an administration fee of $40 each year.
However, if during the accumulation period the contract value is equal to or
greater than $100,000 at the time of the fee's assessment, we will waive the
fee. During the accumulation period, this administration fee is deducted on the
last day of each contract year. It is withdrawn from each investment option in
the same proportion that the value of that investment option bears to the
contract value. If the entire contract is withdrawn on other than the last day
of any contract year, the $40 administration fee will be deducted from the
amount paid. During the pay-out period, the fee is deducted on a pro-rata basis
from each annuity payment.
We deduct asset-based charges totaling 1.55% on an annual basis for
administration, and mortality and expense risks.
A daily fee in an amount equal to 0.30% of the value of each variable
investment account on an annual basis is deducted from each sub-account as an
administration fee. This asset-based administration fee will not be deducted
from the fixed account investment options.
Even though administrative expenses may increase, we guarantee that we
will not increase the amount of the administration fees.
MORTALITY AND EXPENSE RISK CHARGE
The mortality risk we assume is the risk that annuitants may live for a
longer period of time than we estimate. We assume this mortality risk by virtue
of annuity rates incorporated into the contract which cannot be changed. This
assures each annuitant that his or her longevity will not have an adverse effect
on the amount of annuity payments. We also assume mortality risks in connection
with our guarantee that, if the contract owner dies during the accumulation
period, we will pay a death benefit. The expense risk we assume is the risk that
the administration charges, distribution charge, or withdrawal charge may be
insufficient to cover actual expenses.
To compensate us for assuming these risks, we deduct from each of the
sub-accounts a daily charge in an amount equal to 1.25% of the value of the
variable investment accounts on an annual basis. The rate of the mortality and
expense risk charge cannot be increased. If the charge is insufficient to cover
the actual cost of the mortality and expense risks assumed, we will bear the
loss. Conversely, if the charge proves more than sufficient, the excess will be
profit to us and will be available for any proper corporate purpose including,
among other things, payment of distribution expenses. The mortality and expense
risk charge is not assessed against the fixed account investment option.
TAXES
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We will charge you for state premium taxes to the extent we incur them and
reserve the right to charge you for new taxes we may incur.
We reserve the right to charge, or provide for, certain taxes against
purchase payments, contract values or annuity payments. Such taxes may include
premium taxes or other taxes levied by any government entity which the we
determine to have resulted from our:
- establishment or maintenance of the Variable Account,
- receipt of purchase payments,
- issuance of the contacts, or
- commencement or continuance of annuity payments under the
contracts.
In addition, we will withhold taxes to the extent required by applicable law.
Except for residents of those states which apply premium taxes upon
receipt of purchase payments, premium taxes will be deducted from the contract
value used to provide for fixed or variable annuity payments. For residents of
those states which apply premium taxes upon receipt of purchase payments,
premium taxes will be deducted upon payment of any withdrawal benefits, upon any
annuitization, or payment of death benefits. The amount deducted will depend on
the premium tax assessed in the applicable state. State premium taxes currently
range from 0% to 3.5% depending on the jurisdiction and the tax status of the
contract and are subject to change by the legislature or other authority. See
APPENDIX C for a table of State Premium Taxes.
EXPENSES OF DISTRIBUTING CONTRACT
MSS, the principal underwriter for the contracts, pays compensation to
selling brokers in varying amounts which under normal circumstances are not
expected to exceed 5.65% of purchase payments plus 0.75% of the contract value
per year commencing one year after each purchase payments. These expenses are
not assessed against the contracts but are instead paid by MSS. See
"Distribution of Contracts" for further information.
FEDERAL TAX MATTERS
INTRODUCTION
The following discussion of the federal income tax treatment of the
contract is not exhaustive, does not purport to cover all situations, and is not
intended as tax advice. You should consult a qualified tax advisor with regard
to the application of the law to your circumstances. This discussion is based on
the Code, Treasury Department regulations, and interpretations existing on the
date of this Prospectus. These authorities, however, are subject to change by
Congress, the Treasury Department, and judicial decisions.
This discussion does not address state or local tax consequences
associated with the purchase of a contract. In addition, WE MAKE NO GUARANTEE
REGARDING ANY TAX TREATMENT -- FEDERAL, STATE, OR LOCAL -- OF ANY CONTRACT OR OF
ANY TRANSACTION INVOLVING A CONTRACT.
OUR TAX STATUS
We are taxed as a life insurance company. Because the operations of the
Variable Account are a part of, and are taxed with, our operations, the Variable
Account is not separately taxed as a "regulated investment company" under the
Code. Under existing federal income tax laws, we are not taxed on the investment
income and capital gains of the Variable Account. We do not anticipate that we
will taxed on the income and gains of the Variable Account, but if we are, then
we may impose a corresponding charge against the Variable Account in order to
make provision for that liability.
TAXATION OF ANNUITIES IN GENERAL
TAX DEFERRAL DURING ACCUMULATION PERIOD
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Gains inside the contract are usually tax-deferred until you make a withdrawal,
start receiving annuity benefit payments, or receive a death benefit payment.
Under existing provisions of the Code, except as described below, any
increase in the contract value is generally not taxable to the contract owner or
annuitant until received, either in the form of annuity payments, or in some
other form of distribution. Certain requirements must be satisfied in order for
this general rule to apply, including:
- the contract must be owned by an individual (or treated as
owned by an individual),
- the investments of the Variable Account must be "adequately
diversified" in accordance with Treasury Department
regulations,
- we, rather than the contract owner, must be considered the
owner of the assets of the Variable Account for federal tax
purposes, and
- the contract must provide for appropriate amortization,
through annuity payments, of the contract's purchase payments
and earnings, e.g., the pay-out period must not occur near the
end of the annuitants life expectancy.
NON-NATURAL OWNERS. As a general rule, deferred annuity contracts held
by "non-natural persons" (such as a corporation, trust or other similar entity)
are not treated as annuity contracts for federal income tax purposes. The
investment income on such contracts is taxed as ordinary income that is received
or accrued by the owner of the contract during the taxable year. There are
several exceptions to this general rule for non-natural contract owners. First,
contracts will generally be treated as held by a natural person if the nominal
owner is a trust or other entity which holds the contract as an agent for a
natural person. This special exception will not apply, however, in the case of
any employer who is the nominal owner of an annuity contract under a
non-qualified deferred compensation arrangement for its employees.
Exceptions to the general rule for non-natural contract owners will
also apply with respect to:
- contracts acquired by an estate of a decedent by reason of the
death of the decedent,
- certain qualified contracts,
- certain contracts purchased by employers upon the termination
of certain qualified plans,
- certain contracts used in connection with structured
settlement agreements, and
- contracts purchased with a single premium when the annuity
starting date (as defined in the tax law) is no later than a
year from purchase of the annuity and substantially equal
periodic payments are made, not less frequently than annually,
during the annuity period.
LOSS OF INTEREST DEDUCTION WHERE CONTRACTS ARE HELD BY OR FOR THE
BENEFIT OF CERTAIN NON-NATURAL Persons. In the case of contracts issued after
June 8, 1997 to a non-natural taxpayer (such as a corporation or a trust), or
held for the benefit of such an entity, recent changes in the tax law may result
in otherwise deductible interest no longer being deductible by the entity,
regardless of whether the interest relates to debt used to purchase or carry the
contract. However, this interest deduction disallowance does not affect
contracts where the income on such contracts is treated as ordinary income that
is received or accrued by the owner during the taxable year. Entities that are
considering purchasing the contract, or entities that will be beneficiaries
under a contract, should consult a tax advisor.
DIVERSIFICATION REQUIREMENTS. For a contract to be treated as an
annuity for Federal income tax purposes, the investments of the Variable Account
must be "adequately diversified" in accordance with Treasury Department
Regulations. The Secretary of the Treasury has issued regulations which
prescribe standards for determining whether the investments of the Variable
Account are "adequately diversified." If the Variable Account failed to comply
with these diversification standards, a contract would not be treated as an
annuity contract for Federal income tax purposes and the contract owner would
generally be taxable currently on the excess of the contract value over the
premiums paid for the contract.
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Although we do not control the investments of the Trust, we expect that
the Trust will comply with such regulations so that the Variable Account will be
considered "adequately diversified."
OWNERSHIP TREATMENT. In certain circumstances, a variable annuity
contract owner may be considered the owner, for federal income tax purposes, of
the assets of the insurance company separate account used to support his or her
contract. In those circumstances, income and gains from such separate account
assets would be includible in the contract owner's gross income. The IRS has
stated in published rulings that a variable contract owner will be considered
the owner of separate account assets if the owner possesses "incidents of
ownership" in those assets, such as the ability to exercise investment control
over the assets. In addition, the Treasury Department announced, in connection
with the issuance of regulations concerning investment diversification, that
those regulations "do not provide guidance concerning the circumstances in which
investor control of the investments of a segregated asset account may cause the
investor, rather than the insurance company, to be treated as the owner of the
assets in the account." This announcement also stated that guidance would be
issued in the form of regulations or rulings on the "extent to which
Policyholders may direct their investments to particular sub-accounts of a
separate account without being treated as owners of the underlying assets." As
of the date of this Prospectus, no such guidance has been issued.
The ownership rights under this contract are similar to, but different
in certain respects from, those described by the IRS in rulings in which it was
determined that contract owners were not owners of separate account assets. For
example, the owner of this contract has the choice of many more investment
options to which to allocate premiums and contract values, and may be able to
transfer among investment options more frequently than in such rulings. THESE
DIFFERENCES COULD RESULT IN THE CONTRACT OWNER BEING TREATED AS THE OWNER OF THE
ASSETS OF THE VARIABLE ACCOUNT AND THUS SUBJECT TO CURRENT TAXATION ON THE
INCOME AND GAINS FROM THOSE ASSETS. In addition, we do not know what standards
will be set forth in the regulations or rulings which the Treasury Department
has stated it expects to issue. We therefore reserve the right to modify the
contract as necessary to attempt to prevent the contract owners from being
considered the owners of the assets of the Variable Account.
DELAYED PAY-OUT PERIODS. If the contract's pay-out period commences (or
is scheduled to commence) at a time when the annuitant has reached an advanced
age, e.g., past age 85, it is possible that the contract would not be treated as
an annuity for Federal income tax purposes. In that event, the income and gains
under the contract could be currently includible in the owner's income.
The remainder of this discussion assumes that the contract will be
treated as an annuity contract for Federal income tax purposes and that we will
be treated as the owner of the Variable Account assets.
TAXATION OF PARTIAL AND FULL WITHDRAWALS
In the case of a partial withdrawal, amounts received are includible in
income to the extent the contract value before the withdrawal exceeds the
"INVESTMENT IN THE CONTRACT." In the case of a full withdrawal, amounts received
are includible in income to the extent they exceed the "investment in the
contract." For these purposes the investment in the contract at any time equals
the total of the purchase payments made under the contract to that time (to the
extent such payments were neither deductible when made nor excludible from
income as, for example, in the case of certain employer contributions to
qualified plans) less any amounts previously received from the contract which
were not included in income. In this regard, the payment enhancements provided
under a contract are not treated as purchase payments and thus do not increase
the investment in the contract.
Other than in the case of certain qualified contracts, any amount
received as a loan under a contract, and any assignment or pledge (or agreement
to assign or pledge) any portion of the contract value, is treated as a
withdrawal of such amount or portion. (Loans, assignments and pledges are
permitted only in limited circumstances under qualified contracts.) The
investment in the contract is increased by the amount includible in income with
respect to such assignment or pledge, though it is not affected by any other
aspect of the assignment or pledge (including its release). If an individual
transfers his or her interest in an annuity contract without adequate
consideration to a person other than the owner's spouse (or to a former spouse
incident to divorce), the owner will be taxed on the difference between the
"contract value" and the "investment in the contract" at the time of transfer.
In such a case, the transferee's investment in the contract will be increased to
reflect the increase in the transferor's income.
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The contract provides a death benefit that in certain circumstances may
exceed the greater of the purchase payments and the contract value. As described
elsewhere in this Prospectus, we impose certain charges with respect to the
death benefit. It is possible that those charges (or some portion thereof) could
be treated for Federal income tax purposes as a partial withdrawal from the
contract.
There may be special income tax issues present in situations where the
owner and the annuitant are not the same person and are not married to one
another. A tax advisor should be consulted in those situations.
TAXATION OF ANNUITY BENEFIT PAYMENTS
A portion of each annuity payment is usually taxable as ordinary income
Normally, a portion of each annuity benefit payment is taxable as
ordinary income. The taxable portion of an annuity benefit payment is equal to
the excess of the payment over the "EXCLUSION AMOUNT." In the case of variable
annuity payments, the exclusion amount is the "investment in the contract"
(defined above) allocated to the variable annuity option, adjusted for any
period certain or refund feature, when payments begin to be made divided by the
number of payments expected to be made (determined by Treasury Department
regulations which take into account the annuitant's life expectancy and the form
of annuity benefit selected). In the case of fixed annuity payments, the
exclusion amount is the amount determined by multiplying the payment by the
ratio of (a) to (b), where:
(a) is the investment in the contract allocated to the fixed annuity
option (adjusted for any period certain or refund feature) and
(b) is the total expected value of fixed annuity payments for the term
of the contract (determined under Treasury Department
regulations).
A simplified method of determining the taxable portion of annuity payments
applies to contracts issued in connection with certain qualified plans other
than IRAs.
Once the total amount of the investment in the contract is excluded
using these ratios, annuity payments will be fully taxable. If annuity payments
cease because of the death of the annuitant and before the total amount of the
investment in the contract is recovered, the unrecovered amount generally will
be allowed as a deduction to the annuitant in his or her last taxable year.
TAXATION OF DEATH BENEFIT PROCEEDS
Amounts may be distributed from a contract because of the death of an
owner or the annuitant. During the accumulation period, death benefit proceeds
are includible in income as follows:
- if distributed in a lump sum, they are taxed in the same
manner as a full withdrawal, as described above, or
- if distributed under an annuity option, they are taxed in the
same manner as annuity payments, as described above.
During the pay-out period, where a guaranteed period exists under an annuity
option and the annuitant dies before the end of that period, payments made to
the beneficiary for the remainder of that period are includible in income as
follows:
- if received in a lump sum, they are includible in income to
the extent that they exceed the unrecovered investment in the
contract at that time, or
- if distributed in accordance with the existing annuity option
selected, they are fully excludable from income until the
remaining investment in the contract is deemed to be
recovered, and all annuity payments thereafter are fully
includible in income.
PENALTY TAX ON PREMATURE DISTRIBUTIONS
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Withdrawals prior to age 59-1/2 may incur a 10% penalty tax.
There is a 10% penalty tax on the taxable amount of any payment from a
non-qualified contract unless the payment is:
- received on or after the contract owner reaches age 59-1/2;
- attributable to the contract owner's becoming disabled (as
defined in the tax law);
- made to a beneficiary on or after the death of the contract
owner or, if the contract owner is not an individual, on or
after the death of the primary annuitant (as defined in the
tax law);
- made as a series of substantially equal periodic payments (not
less frequently than annually) for the life (or life
expectancy) of the annuitant or for the joint lives (or joint
life expectancies) of the annuitant and designated beneficiary
(as defined in the tax law);
- made under an annuity contract purchased with a single premium
when the annuity starting date (as defined in the tax law) is
no later than a year from purchase of the annuity and
substantially equal periodic payments are made, not less
frequently than annually, during the annuity period; or
- made with respect to certain annuities issued in connection
with structured settlement agreements.
A similar penalty tax, applicable to distributions from certain qualified
contracts, is discussed below.
AGGREGATION OF CONTRACTS
In certain circumstances, the amount of an annuity payment or a
withdrawal from a contract that is includible in income may be determined by
combining some or all of the non-qualified contracts owned by an individual. For
example, if a person purchases a contract offered by this Prospectus and also
purchases at approximately the same time an immediate annuity, the IRS may treat
the two contracts as one contract. In addition, if a person purchases two or
more deferred annuity contracts from the same insurance company (or its
affiliates) during any calendar year, all such contracts will be treated as one
contract. The effects of such aggregation are not clear; however, it could
affect the amount of a withdrawal or an annuity payment that is taxable and the
amount which might be subject to the penalty tax described above.
QUALIFIED RETIREMENT PLANS
Special tax provisions apply to qualified plans.
The contracts are also designed for use in connection with certain
types of retirement plans which receive favorable treatment under the Code
("QUALIFIED PLANS"). Numerous special tax rules apply to the participants in
qualified plans and to the contracts used in connection with qualified plans.
Therefore, no attempt is made in this Prospectus to provide more than general
information about use of the contract with the various types of qualified plans.
Brief descriptions of various types of qualified plans in connection with which
we may issue a contract (and a discussion of possible consequences of certain
features of the contracts under those types of qualified plans) are contained in
APPENDIX F to this Prospectus. In particular, as noted in Appendix F, the
purchaser should consider the effects of the death benefit and the payment
enhancement on the income tax treatment of certain types of qualified plans.
Consult your tax advisor and plan fiduciary prior to taking a loan.
The tax rules applicable to qualified plans vary according to the type
of plan and the terms and conditions of the plan itself. For example, for both
withdrawals and annuity payments under certain qualified contracts, there may be
no "investment in the contract" and the total amount received may be taxable.
Also, loans from qualified contracts, where allowed, are subject to a variety of
limitations, including restrictions as to the amount that may be borrowed, the
duration of the loan, and the manner in which the loan must be repaid. (You
should always consult your tax advisor and retirement plan fiduciary prior to
exercising your loan privileges.) Both the amount of the contribution that may
be made, and the tax deduction or exclusion that you may claim for that
contribution, are limited under qualified plans. If you are considering the
purchase of a contract in connection with a qualified plan, you should consider,
in evaluating the suitability of the contract, that the contract requires a
minimum initial purchase payment of $10,000. If this contract is used in
connection with a qualified plan, the owner and annuitant must be the same
individual. If a co-annuitant is named, all distributions made while the
annuitant is alive must be
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<PAGE> 37
made to the annuitant. Also, if a co-annuitant is named who is not the
annuitant's spouse, the annuity options which are available may be limited,
depending on the difference in ages between the annuitant and co-annuitant.
Furthermore, the length of any guarantee period may be limited in some
circumstances to satisfy certain minimum distribution requirements under federal
tax laws.
In addition, special rules apply to the time at which distributions
must commence and the form in which the distributions must be paid. For example,
failure to comply with minimum distribution requirements applicable to qualified
plans will result in the imposition of an excise tax. This excise tax generally
equals 50% of the amount by which a minimum required distribution exceeds the
actual distribution from the qualified plan. In the case of IRAs (other than
ROTH IRAs), distributions of minimum amounts (as specified in the tax law) must
generally commence by April 1 of the calendar year following the calendar year
in which the owner attains age 70-1/2. In the case of certain other qualified
plans, distributions of such minimum amounts must generally commence by the
later of this date or April 1 of the calendar year following the calendar year
in which the employee retires.
There is also a 10% penalty tax on the taxable amount of any payment
from certain qualified contracts (but not Section 457 plans). (The amount of the
penalty tax is 25% of the taxable amount of any payment received from a "SIMPLE
retirement account" during the 2-year period beginning on the date the
individual first participated in any qualified salary reduction arrangement (as
defined in the tax law) maintained by the individual's employer.) There are
exceptions to this penalty tax which vary depending on the type of qualified
plan. In the case of an "Individual Retirement Annuity" or an "IRA," including a
"SIMPLE IRA," exceptions provide that the penalty tax does not apply to a
payment:
- received on or after the contract owner reaches age 59-1/2,
- received on or after the owner's death or because of the
owner's disability (as defined in the tax law), or
- made as a series of substantially equal periodic payments (not
less frequently than annually) for the life (or life
expectancy) of the owner or for the joint lives (or joint life
expectancies) of the owner and designated beneficiary (as
defined in the tax law).
These exceptions, as well as certain others not described herein, generally
apply to taxable distributions from other qualified plans (although, in the case
of plans qualified under Sections 401 and 403, the exception for substantially
equal periodic payments applies only if the owner has separated from service).
In addition, the penalty tax does not apply to certain distributions from IRAs
taken after December 31, 1997 which are used for qualified first time home
purchases or for higher education expenses. Special conditions must be met to
qualify for these two exceptions to the penalty tax. If you wish to take a
distribution from an IRA for these purposes, you should consult your tax
advisor.
When issued in connection with a qualified plan, a contract will be
amended as generally necessary to conform to the requirements of the plan.
However, the rights of any person to any benefits under qualified plans may be
subject to the terms and conditions of the plans themselves, regardless of the
terms and conditions of the contract. In addition, we will not be bound by terms
and conditions of qualified plans to the extent those terms and conditions
contradict the contract, unless we consent.
DIRECT ROLLOVERS
If the contract is used in connection with a retirement plan that is
qualified under Sections 401(a), 403(a), or 403(b) of the Code, any "ELIGIBLE
ROLLOVER DISTRIBUTION" from the contract will be subject to "direct rollover"
and mandatory withholding requirements. An eligible rollover distribution
generally is any taxable distribution from such qualified plans, excluding
certain amounts such as (i) minimum distributions required under Section
401(a)(9) of the Code, and (ii) certain distributions for life, life expectancy,
or for 10 years or more which are part of a "series of substantially equal
periodic payments."
Under these requirements, federal income tax equal to 20% of the
eligible rollover distribution will be withheld from the amount of the
distribution. Unlike withholding on certain other amounts distributed from the
contract, discussed below, the owner cannot elect out of withholding with
respect to an eligible rollover distribution. However, this 20% withholding will
not apply if, instead of receiving the
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<PAGE> 38
eligible rollover distribution, the person receiving the distribution elects to
have it directly transferred to certain qualified plans. Prior to receiving an
eligible rollover distribution, a notice will be provided explaining generally
the direct rollover and mandatory withholding requirements and how to avoid the
20% withholding by electing a direct rollover.
FEDERAL INCOME TAX WITHHOLDING
We may be required to withhold amounts from some payments for federal income tax
payments.
We will withhold and remit to the U.S. Government a part of the taxable
portion of each distribution made under a contract unless the person receiving
the distribution notifies us at or before the time of the distribution that he
or she elects not to have any amounts withheld. In certain circumstances, we may
be required to withhold tax. The withholding rates applicable to the taxable
portion of periodic annuity payments are the same as the withholding rates
generally applicable to payments of wages. In addition, the withholding rate
applicable to the taxable portion of non-periodic payments (including
withdrawals prior to the maturity date and rollovers from non-Roth IRAs to Roth
IRAs) is 10%. As discussed above, the withholding rate applicable to eligible
rollover distributions is 20%.
GENERAL MATTERS
TAX DEFERRAL
The status of the contract as an annuity generally allows all earnings
on the underlying investments to be tax-deferred until withdrawn or until
annuity payments begin (see "FEDERAL TAX MATTERS"). This tax deferred treatment
may be beneficial to contract owners in building assets in a long-term
investment program.
PERFORMANCE DATA
We may advertise our investment performance.
Each of the sub-accounts may quote total return figures in its
advertising and sales materials. PAST PERFORMANCE FIGURES ARE NOT INTENDED TO
INDICATE FUTURE PERFORMANCE OF ANY SUB-ACCOUNT. The sub-accounts may advertise
both "standardized" and "non-standardized" total return figures. Standardized
figures will include average annual total return figures for one, five and ten
years, or from the inception date of the relevant sub-account of the Variable
Account (if that period since inception is shorter than one of those periods).
Non-standardized total return figures may be quoted including figures that do
not assume redemption at the end of the time period. Non-standardized figures
also include total return numbers from the inception date of the portfolio or
ten years, whichever period is shorter. Where the period since inception is less
than one year, the total return quoted will be the aggregate return for the
period.
Average annual total return is the average annual compounded rate of
return that equates a purchase payment to the market value of that purchase
payment on the last day of the period for which such return is calculated. The
aggregate total return is the percentage change (not annualized) that equates a
purchase payment to the market value of such purchase payment on the last day of
the period for which such return is calculated. For purposes of the calculations
it is assumed that an initial payment of $1,000 is made on the first day of the
period for which the return is calculated. For total return figures quoted for
periods prior to the commencement of the offering of the contract, standardized
performance data will be the historical performance of the Trust portfolio from
the date the applicable sub-account of the Variable Account first became
available for investment under other contracts that we offer, adjusted to
reflect current contract charges. In the case of non-standardized performance,
performance figures will be the historical performance of the Trust portfolio
from the inception date of the portfolio (or in the case of the Trust portfolios
created in connection with the merger of Manulife Series Fund, Inc. into the
Trust, the inception date of the applicable predecessor Manulife Series Fund
portfolio), adjusted to reflect current contract charges.
ASSET ALLOCATION AND TIMING SERVICES
We are aware that certain third parties are offering asset allocation
and timing services in connection with the contracts. In certain cases we have
agreed to honor transfer instructions from such asset allocation and timing
services where we have received powers of attorney, in a form acceptable to us,
from the contract owners participating in the service. WE DO NOT ENDORSE,
APPROVE OR RECOMMEND SUCH SERVICES IN ANY WAY AND YOU SHOULD BE AWARE THAT FEES
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<PAGE> 39
PAID FOR SUCH SERVICES ARE SEPARATE AND IN ADDITION TO FEES PAID UNDER THE
CONTRACTS.
RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM
Section 830.105 of the Texas Government Code permits participants in
the Texas Optional Retirement Program ("ORP") to withdraw their interest in a
variable annuity contract issued under the ORP only upon:
- termination of employment in the Texas public institutions of
higher education,
- retirement,
- death, or
- the participant's attainment of age 70-1/2.
Accordingly, before any amounts may be distributed from the contract, proof must
be furnished to us that one of these four events has occurred. The foregoing
restrictions on withdrawal do not apply in the event a participant in the ORP
transfers the contract value to another contract or another qualified custodian
during the period of participation in the ORP. Loans are not available under
contracts subject to the ORP.
DISTRIBUTION OF CONTRACTS
We pay brokers-dealers to sell the Contracts.
MSS is a Delaware limited liability company that we control, is the
principal underwriter of the contracts. MSS also is the investment adviser to
the Trust. MSS is a broker-dealer registered under the Securities Exchange Act
of 1934 (the "1934 Act") and a member of the National Association of Securities
Dealers, Inc. (the "NASD") and is located at 73 Tremont Street, Boston,
Massachusetts 02108. MSS has entered into a non-exclusive promotional agent
agreement with Wood Logan Associates, Inc. ("WOOD LOGAN"). Wood Logan is a
broker-dealer registered under the 1934 Act and a member of the NASD. Wood Logan
is a wholly owned subsidiary of a holding company that is 62.5% owned by The
Manufacturers Life Insurance Company (U.S.A.), 22.5% owned by MRL Holding, LLC
and approximately 15% owned by the principals of Wood Logan. Sales of the
contracts will be made by registered representatives of broker-dealers
authorized by MSS to sell the contracts. Those registered representatives will
also be our licensed insurance agents. Under the promotional agent agreement,
Wood Logan will recruit and provide sales training and licensing assistance to
those registered representatives. In addition, Wood Logan will prepare sales and
promotional materials for our approval. MSS will pay distribution compensation
to selling brokers-dealers in varying amounts which under normal circumstances
are not expected to exceed 5.65% of purchase payments plus 0.75% of the contract
value per year commencing one year after each purchase payment. MSS may from
time to time pay additional compensation pursuant to promotional contests.
Additionally, in some circumstances, MSS will provide reimbursement of certain
sales and marketing expenses. MSS will pay the promotional agent for providing
marketing support for the distribution of the contracts.
CONTRACT OWNER INQUIRIES
Your inquiries should be directed to our Annuity Service Office at P.O.
Box 9230, Boston, Massachusetts 02205-9230.
CONFIRMATION STATEMENTS
You will be sent confirmation statements for certain transactions in
your account. You should carefully review these statements to verify their
accuracy. Any mistakes should immediately be reported to our Company's Annuity
Service Office. If you fail to notify our Annuity Service Office of any mistake
within 60 days of the mailing of the confirmation statement, you will be deemed
to have ratified the transaction.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Account is a party
or to which the assets of the Variable Account are subject. Neither we nor MSS
are involved in any litigation that is of material importance to either, or that
relates to the Variable Account.
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<PAGE> 40
YEAR 2000 ISSUES
We make extensive use of information systems in the operations of our
various businesses, including for the exchange of financial data and other
information with customers, suppliers and other counterparties. We also use
software and information systems provided by third parties in our accounting,
business and investment systems.
The Year 2000 risk, as it is commonly known, is the result of computer
programs being written using two digits, rather than four, to define the
applicable year. Any of our computer programs that have date-sensitive software
may recognize a date using "00" as the year 1900 rather than the Year 2000. This
could result in systems failures or miscalculations causing disruptions of
operations, including among other things, a temporary inability to process
transactions, send premium billing notices, make claims payments or engage in
other normal business activities.
The systems used by us have been assessed as part of a comprehensive
written plan conducted by The Manufacturers Life Insurance Company (collectively
with its subsidiaries "MANULIFE"), to ensure that computer systems and processes
of Manulife and its subsidiaries and affiliates, including ours, will continue
to perform through the end of this century and in the next.
In 1996, in order to make Manulife's systems Year 2000 compliant, a
program was instituted to modify or replace both Manulife's information
technology systems ("IT SYSTEMS") and embedded technology systems ("NON-IT
SYSTEMS"). The phases of this program include (i) an inventory and assessment of
all systems to determine which are critical, (ii) planning and designing the
required modifications and replacements, (iii) making these modifications and
replacements, (iv) testing modified or replaced systems, (v) redeploying
modified or replaced systems and (vi) final management review and certification.
For most IT and non-IT systems identified as critical, our certification has
been completed. Of those systems classified as critical, management believes
that over 99% were Year 2000 compliant at the end of 1998. Management continues
to focus attention on the remaining 1% of critical systems. Those that affect us
are expected to be compliant by the end of the second quarter in 1999.
Management believes that the our non-critical systems will be Year 2000
compliant by the end of the first quarter 1999.
In addition to efforts directed at Manulife's own systems, Manulife is
presently consulting vendors, customers, and other third parties with which it
deals in an effort to ensure that no material aspect of Manulife's operations
will be hindered by Year 2000 problems of these third parties. This process
includes providing third parties with questionnaires regarding the state of
their Year 2000 readiness and, where possible or where appropriate, conducting
further due diligence activities.
Manulife recognizes the importance of preparing for the change to the
Year 2000 and, in January 1999, commenced preparation of contingency plans, in
the event that Manulife's Year 2000 program has not fully resolved its Year 2000
issues. The Year 2000 Project Management Office for Manulife's U.S. Division is
coordinating the preparation of the Year 2000 contingency plan on behalf of U.S.
Division affiliates and subsidiaries. Contingency planning is targeted for
completion by mid-1999.
Management currently believes that, with modifications to existing
software and conversions to new software, the Year 2000 risk will not pose
significant operational problems for Manulife's computer systems. As part of the
Year 2000 program, critical systems were "time-shift" tested in the Year 2000
and beyond to confirm that they will continue to function properly before,
during and after the change to the Year 2000. However, there can be no assurance
that Manulife's Year 2000 program, including consulting third parties and its
contingency planning, will avoid any material adverse effect on Manulife's
operations, customer relations or financial condition. Manulife estimates the
total cost of its Year 2000 program will be approximately $59 million, of which
$49.5 million has been incurred through December 31, 1998; however, there can be
no assurance that the actual cost incurred will not be materially higher than
such estimate. Most costs will be expensed as incurred; however, those costs
attributed to the purchase of new software and hardware will generally be
capitalized. The total cost of the Year 2000 program is not expected to have a
material effect on Manulife's net operating income.
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<PAGE> 41
CANCELLATION OF CONTRACT
We may, at our option, cancel a contract at the end of any two
consecutive contract years in which no purchase payments by or on behalf of you,
have been made, if both:
- the total purchase payments made for the contract, less any
withdrawals, are less than $2,000; and
- the contract value at the end of such two year period is less
than $2,000.
We, as a matter of administrative practice, will attempt to notify you prior to
such cancellation in order to allow you to make the necessary purchase payment
to keep the contract in force. The cancellation of contract provisions may vary
in certain states in order to comply with the requirements of insurance laws and
regulations in such states.
VOTING INTEREST
As stated above under "The Trust," we will vote shares of the Trust
portfolios held in the Variable Account at shareholder meetings according to
voting instructions received from the persons having the voting interest under
the contracts.
Accumulation Period. During the accumulation period, the contract owner
has the voting interest under a contract. The number of votes for each portfolio
for which voting instructions may be given is determined by dividing the value
of the investment account corresponding to the sub-account in which such
portfolio shares are held by the net asset value per share of that portfolio.
Pay-out Period. During the pay-out period, the annuitant has the voting
interest under a contract. The number of votes as to each portfolio for which
voting instructions may be given is determined by dividing the reserve for the
contract allocated to the sub-account in which such portfolio shares are held by
the net asset value per share of that portfolio.
Generally, the number of votes tends to decrease as annuity payments
progress since the amount of reserves attributable to a contract will usually
decrease after commencement of annuity payments. We will determine the number of
portfolio shares for which voting instructions may be given not more than 90
days prior to the meeting.
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<PAGE> 42
APPENDIX A
SPECIAL TERMS
The following terms as used in this Prospectus have the indicated meanings:
ACCUMULATION UNIT - A unit of measure that is used to calculate the
value of the variable portion of the contract before the maturity date.
ACCUMULATION AND PAY-OUT PERIODS - The accumulation period is the time (prior to
the maturity date) when you make payments to us. The Pay-out period is the time
(beginning on the maturity date) when we make payments to you.
ANNUITANT - Any natural person or persons whose life is used to determine the
duration of annuity payments involving life contingencies. If the contract owner
names more than one person as an "annuitant," the second person named shall be
referred to as "co-annuitant." The "annuitant" and "co-annuitant" will be
referred to collectively as "annuitant." The "annuitant" is as designated on the
contract specification page, unless changed.
ANNUITY OPTION - The method you select (or as specified in the contract if no
selection is made) for annuity benefit payments from us to the annuitant.
ANNUITY SERVICE OFFICE - The address of our Annuity Service Office is: P.O. Box
9230, Boston, Massachusetts 02205-9230.
ANNUITY UNIT - A unit of measure that is used after the maturity date to
calculate variable annuity payments.
BENEFICIARY - The person, persons or entity entitled to the death benefit under
the contract upon the death of a contract owner or, in certain circumstances, an
annuitant. The beneficiary is as specified in the contract specification page,
unless changed. If there is a surviving contract owner, that person will be
deemed the beneficiary.
CONTINGENT BENEFICIARY - The person, persons or entity to become the beneficiary
if the beneficiary is not alive. The contingent beneficiary is as specified in
the application, unless changed.
CONTRACT ANNIVERSARY - The anniversary of the contract date.
CONTRACT DATE - The date of issue of the contract.
CONTRACT VALUE - The total of the investment account values and, if applicable,
any amount in the loan account attributable to the contract.
CONTRACT YEAR - The period of twelve consecutive months beginning on the
contract date or any anniversary thereof.
DUE PROOF OF DEATH - Due Proof of Death is required upon the death of the
contract owner or annuitant, as applicable. One of the following must be
received at our Annuity Service Office within one year of the date of death:
(a) A certified copy of a death certificate;
(b) A certified copy of a decree of a court of competent
jurisdiction as to the finding of death; or
(c) Any other proof satisfactory to us.
Death Benefits will be paid within 7 days of receipt of due proof of death and
all required claim forms by our Annuity Service Office.
FIXED ANNUITY - An annuity option with payments which are predetermined
and guaranteed as to dollar amount.
GENERAL ACCOUNT - All our assets other than assets in separate
accounts.
A-1
<PAGE> 43
INVESTMENT ACCOUNT - An account we establish which represents your
interest in an investment option during the Accumulation Period.
INVESTMENT ACCOUNT VALUE - The value of your allocation to an
investment account.
INVESTMENT OPTIONS - The investment choices available to contract
owners. Currently, there are thirty-eight variable account investment options
and two fixed investment options under the contract.
LOAN ACCOUNT - The portion of the general account that is used for
collateral when a loan is taken.
MATURITY DATE - The date on which the pay-out period commences. The
maturity date is the date specified on the contract specifications page and is
generally the first day of the month following the later of the annuitant's 85th
birthday or the tenth contract anniversary, unless changed.
NET PURCHASE PAYMENT - The purchase payment less the amount of premium
tax, if any, plus any applicable Payment Enhancement.
NON-QUALIFIED CONTRACTS - Contracts which are not issued under
qualified plans.
OWNER OR CONTRACT OWNER - The person, persons (co-owner) or entity
entitled to all of the ownership rights under the contract. The owner has the
legal right to make all changes in contractual designations where specifically
permitted by the contract. The owner is as specified in the contract
specifications page, unless changed.
PAYMENT ENHANCEMENT - The amount in addition to your payment that we
add to your contract at the time you make a purchase payment.
PORTFOLIO OR TRUST PORTFOLIO - A separate investment portfolio of the
Trust, a mutual fund in which the Variable Account invests, or of any successor
mutual fund.
PURCHASE PAYMENT - An amount you pay to us as consideration for the
benefits provided by the contract.
QUALIFIED CONTRACTS - Contracts issued under qualified plans.
QUALIFIED PLANS - Retirement plans which receive favorable tax
treatment under Section 401, 403, 408, 408A or 457 of the Internal Revenue Code
of 1986, as amended.
SEPARATE ACCOUNT - A segregated account that we establish that is not
commingled with our general assets and obligations.
SUB-ACCOUNT(S) - One or more of the sub-accounts of the Variable
Account. Each sub-account is invested in shares of a different Trust portfolio.
VALUATION DATE - Any date on which the New York Stock Exchange is open
for business and the net asset value of a Trust portfolio is determined.
VALUATION PERIOD - Any period from one valuation date to the next,
measured from the time on each such date that the net asset value of each
portfolio is determined.
VARIABLE ACCOUNT - One of our separate accounts that is used to fund
the contracts.
VARIABLE ANNUITY - An annuity option with payments which: (1) are not
predetermined or guaranteed as to dollar amount, and (2) vary in relation to the
investment experience of one or more specified sub-accounts.
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APPENDIX B
EXAMPLES OF CALCULATION OF WITHDRAWAL CHARGE
EXAMPLE 1 - Assume:
- a single payment of $50,000 is made,
- a 3% payment enhancement of $1,500 is credited to contract
value,
- no additional payments are made and
- there are no partial withdrawals.
The table below illustrates five examples of the withdrawal charges that would
be imposed if the contract is completely withdrawn. All contract values are
hypothetical.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Contract Hypothetical Free Withdrawal Payments Withdrawal
Year Contract Value Amount Liquidated Charge
- --------------------------------------------------------------------------------
Percent Amount
<S> <C> <C> <C> <C> <C>
2 $55,000 $ 5,000(a) $50,000 8.50% $4,250
4 $50,500 $ 5,000(b) $45,500 7.00% $3,185
6 $60,000 $10,000(c) $50,000 5.00% $2,500
8 $80,000 $30,000(d) $50,000 3.00% $1,500
10 $70,000 $20,000(e) $50,000 0.00% $ 0
- --------------------------------------------------------------------------------
</TABLE>
(a) During any contract year the free withdrawal amount is the greater of:
- the contract value minus unliquidated payments (accumulated
earnings), or
- 10% of total payments made under the contract minus any
partial withdrawals in that contract year.
In the second contract year the earnings under the contract are $5,000
($55,000 - $50,000 = $5,000), and 10% of payments is equal to $5,000
(0.10 x $50,000 = $5,000). Consequently, on total withdrawal $5,000 is
withdrawn free of the withdrawal charge, the entire $50,000 payment is
liquidated and the withdrawal charge is assessed against that
liquidated payment.
(b) In the example for the fourth contract year, there were no earnings in
the contract. The free withdrawal amount therefore is equal to 10% of
payments (0.10 x $50,000 = $5,000) and the withdrawal charge is only
applied to payments liquidated.
(c) In the example for the sixth contract year, the accumulated earnings of
$10,000 is greater than 10% of payments ($5,000). The free withdrawal
amount therefore is equal to the accumulated earnings of $10,000 and
the withdrawal charge is applied to the payments liquidated.
(d) In the example for the eighth contract year, the accumulated earnings
of $30,000 is greater than 10% of payments ($5,000). The free
withdrawal amount therefore is equal to the accumulated earnings of
$30,000 and the withdrawal charge is applied to the payments
liquidated.
(e) There is no withdrawal charge on any payments that have been in the
contract for at least 10 years.
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EXAMPLE 2 - Assume:
- a single payment of $50,000 is made,
- a 3% payment enhancement of $1,500 is credited to contract
value,
- no transfers are made,
- no additional payments are made and
- there are a series of four partial withdrawals made during the
third contract year of $2,000, $5,000, $7,000 and $8,000.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Hypothetical Partial Free Payments Withdrawal Charge
Contract Withdrawal Withdrawal Liquidated
Value Requested Amount
- --------------------------------------------------------------------------------
Percent Amount
<S> <C> <C> <C> <C> <C>
$65,000 $2,000 $15,000(a) $ 0 8.00% $ 0
$49,000 $5,000 $ 3,000(b) $2,000 8.00% $160
$52,000 $7,000 $ 4,000(c) $3,000 8.00% $240
$44,000 $8,000 $ 0(d) $8,000 8.00% $640
- --------------------------------------------------------------------------------
</TABLE>
(a) The free withdrawal amount during any contract year is the greater of
- the contract value minus unliquidated payments (accumulated
earnings), or
- 10% of payments minus 100% of all prior withdrawals in that
contract year.
For the first example, accumulated earnings of $15,000 ($65,000 -
$50,000 = $15,000) is the free withdrawal amount since it is greater
than 10% of payments less prior withdrawals ($5,000 - $0). The amount
requested ($2,000) is less than the free withdrawal amount. Therefore,
payments are not liquidated and no withdrawal charge applies.
(b) The contract has negative accumulated earnings ($49,000 - $50,000 <0),
so the free withdrawal amount is limited to 10% of payments minus 100%
of all prior withdrawals during the contract year. Because $2,000 has
already been withdrawn in the current contract year, the remaining free
withdrawal during the third contract year is $3,000. The $5,000 partial
withdrawal will consist of $3,000 free of withdrawal charge, and the
remaining $2,000 will be subject to a withdrawal charge and will result
in payments being liquidated. The remaining unliquidated payments after
the $5,000 partial withdrawal are $48,000 ($50,000 - $2,000 = $48,000).
(c) The contract has increased in value to $52,000. The unliquidated
payments are $48,000 which results in $4,000 of accumulated earnings
($52,000 - $48,000 = $4,000) which is greater than 10% of payments
minus prior withdrawals this contract year ($5,000 - $2,000 - $5,000 <
0 ). Hence the free withdrawal amount is $4,000, leaving $3,000 of the
$7,000 partial withdrawal subject to a withdrawal charge. The
unliquidated payments are reduced by $3,000 to $45,000.
(d) The free withdrawal amount is zero since the contract has negative
accumulated earnings ($44,000 - $45,0000 < 0) and the full 10% of
payments ($5,000) has already been withdrawn. The full amount of $8,000
will result in payments being liquidated subject to a withdrawal
charge. At the beginning of the next contract year the full 10% of
payments would be available for withdrawal requests during that
contract year.
B-2
<PAGE> 46
APPENDIX C
STATE PREMIUM TAXES
Premium taxes vary according to the state and are subject to change. In many
jurisdictions there is no tax at all. For current information, a tax adviser
should be consulted.
<TABLE>
<CAPTION>
TAX RATE
QUALIFIED NON-QUALIFIED
STATE CONTRACTS CONTRACTS
<S> <C> <C>
CALIFORNIA........................................... .50% 2.35%
DISTRICT OF COLUMBIA................................. 2.25% 2.25%
KENTUCKY............................................. 2.00% 2.00%
MAINE................................................ .00% 2.00%
NEVADA............................................... .00% 3.50%
PUERTO RICO.......................................... 1.00% 1.00%
SOUTH DAKOTA*........................................ .00% 1.25%
WEST VIRGINIA........................................ 1.00% 1.00%
WYOMING.............................................. .00% 1.00%
</TABLE>
* Premium tax paid upon receipt of premium (no tax at annuitization if tax paid
on premium.)
C-1
<PAGE> 47
APPENDIX D
PENNSYLVANIA MAXIMUM MATURITY AGE
For all contracts issued in Pennsylvania the maximum maturity age based upon the
issue age of the annuitant is as follows:
<TABLE>
<CAPTION>
ISSUE AGE MAXIMUM MATURITY AGE
<S> <C>
70 or less 85
71-75 86
76-80 88
81-85 90
86-90 93
91-93 96
94-95 98
96-97 99
98-99 101
100-101 102
102 103
103 104
104 105
105 106
</TABLE>
The annuitant must exercise a settlement annuity option no later than
the maximum maturity age stated above. For example, an annuitant who is age 60
at issue must exercise a settlement option prior to age 86. We will use the
issue age of the youngest annuitant in the determination of the required
settlement option date.
If contracts are issued with annuitants over age 80, a withdrawal
charge could be imposed if they terminate the contract rather than elect a
settlement option upon attainment of the maximum maturity age. This is a result
of the Pennsylvania restrictions in combination with the contract's 9-year
withdrawal charge schedule.
D-1
<PAGE> 48
APPENDIX E
EXAMPLES OF PAYMENT ENHANCEMENT CALCULATIONS
The payment enhancement is determined based on the cumulative amount of your
payments. The payment enhancements, as a percentage of payments, are shown in
the table below.
<TABLE>
<CAPTION>
Cumulative Payments Payment Enhancement*
<S> <C>
$10,000 to $499,999 3.0%
$500,000 to $2,499,999 4.0%
$2,500,000 and above 5.0%
</TABLE>
Payment enhancements are payable as a percentage of the payment being made. The
two examples below demonstrate how the payment enhancement is calculated:
EXAMPLE 1 - Assume an initial payment of $400,000 and a subsequent payment of
$200,000. Payment enhancements would be determined as follows**:
- - A payment enhancement of $12,000 (3% x $400,000) would be allocated among the
investment options in proportion to the allocation of the $400,000 initial
payment.
- - A payment enhancement of $8,000 (4% x $200,000) would be allocated among the
investment options in proportion to the allocation of the $200,000 subsequent
payment.
EXAMPLE 2 - Assume an initial payment of $200,000 and a subsequent payment of
$400,000. payment enhancements would be determined as follows**:
- - A payment enhancement of $6,000 (3% x $200,000) would be allocated among the
investment options in proportion to the allocation of the $200,000 initial
payment.
- - A payment enhancement of $16,000 (4% x $400,000) would be allocated among the
investment options in proportion to the allocation of the $400,000 subsequent
payment.
*Promotional Payments rates that are currently in effect are higher. See
"Description of the Contract - Payment Enhancement."
**Unless we receive a Letter of Intent from you representing that additional
purchase payments will be received within 13 months of the issue date of the
contract. If we receive a Letter of Intent, the payment enhancement will be
determined using the percentage associated with the total amount of purchase
payments indicated in the Letter of Intent (see "payment enhancements").
E-1
<PAGE> 49
APPENDIX F
QUALIFIED PLAN TYPES
Set forth below are brief descriptions of the types of qualified plans
in connection with which we will issue contract. Certain potential tax
consequences associated with use of the contract in connection with qualified
plans are also described. Persons intending to use the contract in connection
with qualified plans should consult their tax advisor.
INDIVIDUAL RETIREMENT ANNUITIES
Section 408 of the Code permits eligible individuals to contribute to
an individual retirement program known as an "Individual Retirement Annuity" or
"IRA." IRAs are subject to limits on the amounts that may be contributed and
deducted, the persons who may be eligible and on the time when distributions may
commence. Also, distributions from certain other types of qualified retirement
plans may be "rolled over" on a tax-deferred basis into an IRA. The contract may
not, however be used in connection with an "Education IRA" under Section 530 of
the Code.
IRAs generally may not provide life insurance coverage, but they may
provide a death benefit that equals the greater of the premiums paid and the
contract value. The contract provides a death benefit that in certain
circumstances may exceed the greater of the purchase payments and the contract
value. It is possible that the contract's death benefit could be viewed as
providing life insurance coverage with the result that the contract would not be
viewed as satisfying the requirements of an IRA.
SIMPLIFIED EMPLOYEE PENSIONS (SEP-IRAS)
Section 408(k) of the Code allows employers to establish simplified
employee pension plans for their employees, using the employees' IRAs for such
purposes, if certain criteria are met. Under these plans the employer may,
within specified limits, make deductible contributions on behalf of the
employees to IRAs. As discussed above (see Individual Retirement Annuities),
there is some uncertainty regarding the treatment of the contract's death
benefit for purposes of the tax rules governing IRAs (which would include
SEP-IRAs).
SIMPLE IRAS
Section 408(p) of the Code permits certain small employers to establish
"SIMPLE retirement accounts," including SIMPLE IRAs, for their employees. Under
SIMPLE IRAs, certain deductible contributions are made by both employees and
employers. SIMPLE IRAs are subject to various requirements, including limits on
the amounts that may be contributed, the persons who may be eligible, and the
time when distributions may commence. As discussed above (see Individual
Retirement Annuities), there is some uncertainty regarding the proper
characterization of the contract's death benefit for purposes of the tax rules
governing IRAs (which would include SIMPLE IRAs). Employers intending to use the
contract in connection with such plans should seek competent advice.
ROTH IRAS
Section 408A of the Code permits eligible individuals to contribute to
a type of IRA known as a "Roth IRA." Roth IRAs are generally subject to the same
rules as non-Roth IRAs, but differ in certain respects.
Among the differences are that contributions to a Roth IRA are not
deductible and "qualified distributions" from a Roth IRA are excluded from
income. A qualified distribution is a distribution that satisfies two
requirements. First, the distribution must be made in a taxable year that is at
least five years after the first taxable year for which a contribution to any
Roth IRA established for the owner was made.
Second, the distribution must be:
- made after the owner attains age 59-1/2;
- made after the owner's death;
- attributable to the owner being disabled; or
- a qualified first-time homebuyer distribution within the
meaning of Section 72(t)(2)(F) of the Code.
In addition, distributions from Roth IRAs need not commence when the
owner attains age 70-1/2. A Roth IRA may accept a "qualified rollover
contribution" from a non-Roth IRA, but a Roth IRA may not accept rollover
contributions from other qualified plans.
F-1
<PAGE> 50
As described above (see Individual Retirement Annuities), there is some
uncertainty regarding the proper characterization of the contract's death
benefit for purposes of the tax rules governing IRAs (which include Roth IRAs).
Furthermore, the state tax treatment of a Roth IRA may differ from the Federal
income tax treatment of a Roth IRA. If you intend to use the contract in
connection with a Roth IRA, you should seek competent tax advice.
CORPORATE AND SELF-EMPLOYED ("H.R. 10" AND "KEOGH") PENSION AND PROFIT-SHARING
PLANS
Sections 401(a) and 403(a) of the Code permit corporate employers to
establish various types of tax-favored retirement plans for employees. The
Self-Employed Individuals' Tax Retirement Act of 1962, as amended, commonly
referred to as "H.R. 10" or "Keogh," permits self-employed individuals also to
establish such tax-favored retirement plans for themselves and their employees.
Such retirement plans may permit the purchase of the contracts in order to
provide benefits under the plans. The contract provides a death benefit that in
certain circumstances may exceed the greater of the purchase payments and the
contract value. It is possible that the IRS could characterize the death benefit
as an "incidental death benefit." If so, the contract owner could be deemed to
receive currently taxable income. In addition, there are limitations on the
amount of incidental benefits that may be provided under pension and profit
sharing plans. In addition, the provision of such benefits may result in current
taxable income to participants. In addition, corporate and self-employed pension
and profit sharing plans are subject to nondiscrimination rules. The
nondiscrimination rules generally require that benefits, rights, or features of
the plan not discriminate in favor of highly compensated employees. In
evaluating whether the contract is suitable for purchase in connection with such
a plan, the effect of the Payment Enhancement on the plan's compliance with the
applicable nondiscrimination requirements should be considered. Violation of
these nondiscrimination rules can cause loss of the plan's tax favored status
under the Code. Employers intending to use the contract in connection with such
plans should seek competent advice.
TAX-SHELTERED ANNUITIES
Section 403(b) of the Code permits public school employees and
employees of certain types of charitable, educational and scientific
organizations specified in Section 501(c)(3) of the Code to have their employers
purchase annuity contracts for them and, subject to certain limitations, to
exclude the amount of purchase payments from gross income for tax purposes.
These annuity contracts are commonly referred to as "tax-sheltered annuities".
Purchasers of the contracts for such purposes should seek competent advice as to
eligibility, limitations on permissible amounts of purchase payments and other
tax consequences associated with the contracts. In particular, purchasers should
consider that the contract provides a death benefit that in certain
circumstances may exceed the greater of the purchase payments and the contract
value. It is possible that such a death benefit could be characterized as an
"incidental death benefit." If so, the contract owner could be deemed to receive
currently taxable income. In addition, there are limitations on the amount of
incidental benefits that may be provided under a tax-sheltered annuity. Even if
the death benefit under the contract were characterized as an incidental death
benefit, it is unlikely to violate those limits unless the purchaser also
purchases a life insurance contract as part of his or her tax-sheltered annuity
plan.
Tax-sheltered annuity contracts must contain restrictions on
withdrawals of:
- contributions made pursuant to a salary reduction agreement in
years beginning after December 31, 1988,
- earnings on those contributions, and
- earnings after 1988 on amounts attributable to salary
reduction contributions (and earnings on those contributions)
held as of the last day of the year beginning before January
1, 1989.
These amounts can be paid only if the employee has reached age 59-1/2, separated
from service, died, or become disabled (within the meaning of the tax law), or
in the case of hardship (within the meaning of the tax law). Amounts permitted
to be distributed in the event of hardship are limited to actual contributions;
earnings thereon cannot be distributed on account of hardship. Amounts subject
to the withdrawal restrictions applicable to Section 403(b)(7) custodial
accounts may be subject to more stringent restrictions. (These limitations on
withdrawals do not apply to the extent we are directed to transfer some or all
of the contract value to the issuer of another tax-sheltered annuity or into a
Section 403(b)(7) custodial account.)
Tax-sheltered annuity plans are subject to nondiscrimination rules. The
nondiscrimination rules generally require that benefits, rights, or features of
the plan not discriminate in favor of highly compensated employees. In
evaluating whether the contract is suitable for purchase in connection with a
tax-sheltered annuity plan, the effect of the payment enhancement on the plan's
compliance with the applicable nondiscrimination requirements should be
considered. Violation of these nondiscrimination rules can cause loss of the
plan's tax favored status under the Code. Employers intending to use the
contract in connection with such plans should seek competent advice.
DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT
ORGANIZATIONS
F-2
<PAGE> 51
Section 457 of the Code permits employees of state and local
governments and tax-exempt organizations to defer a portion of their
compensation without paying current taxes. The employees must be participants in
an eligible deferred compensation plan. Generally, a contract purchased by a
state or local government or a tax-exempt organization will not be treated as an
annuity contract for federal income tax purposes. The contract will be issued in
connection with a section 457 deferred compensation plan sponsored by a state or
local government only if the plan has established a trust to hold plan assets,
including the contract.
F-3
<PAGE> 52
APPENDIX G
TABLE OF ACCUMULATION VALUES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SUB-ACCOUNT UNIT VALUE AT UNIT VALUE AT NUMBER OF UNITS
START OF YEAR* END OF YEAR AT END OF YEAR
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Pacific Rim Emerging Markets
1997 $12.500000 $ 7.956465 24331.413
1998 7.956465 7.472906 100,759.865
- --------------------------------------------------------------------------------
Science & Technology
1997 $12.500000 $10.983380 156835.597
1998 10.983380 15.499402 867,806.448
- --------------------------------------------------------------------------------
International Small Cap
1997 $12.500000 $11.841960 71206.249
1998 11.841960 13.042850 306,704.670
- --------------------------------------------------------------------------------
Aggressive Growth
1997 $12.500000 $11.595531 66641.217
1998 11.595531 11.910371 318,767.400
- --------------------------------------------------------------------------------
Emerging Small Company
1997 $12.500000 $13.088401 88228.592
1998 13.088401 12.896270 447,688.130
- --------------------------------------------------------------------------------
Mid Cap Growth
1997 $12.500000 $12.153015 185064.437
1998 12.153015 15.351927 1,055,511.533
- --------------------------------------------------------------------------------
Overseas
1997 $12.500000 $11.688584 97919.266
1998 11.688584 12.423604 463,080.520
- --------------------------------------------------------------------------------
International Stock
1997 $12.500000 $11.346605 78202.593
1998 11.346605 12.838403 357,481.534
- --------------------------------------------------------------------------------
Mid Cap Blend
1997 $12.500000 $12.479231 339520.345
1998 12.479231 13.443090 1,557,309.071
- --------------------------------------------------------------------------------
Small Company Value
1997 $12.500000 $11.893914 44766.859
1998 11.893914 11.157770 660,344.943
- --------------------------------------------------------------------------------
Global Equity
1997 $12.500000 $12.616506 195153.440
1998 12.616506 13.944724 1,124,988.705
- --------------------------------------------------------------------------------
Growth
1997 $12.500000 $12.257373 208996.758
1998 12.257373 14.929659 995,527.438
- --------------------------------------------------------------------------------
Large Cap Growth
1997 $12.500000 $12.605559 19303.997
1998 12.605559 14.785253 191,996.850
- --------------------------------------------------------------------------------
Quantitative Equity
1997 $12.500000 $12.572103 66662.192
1998 12.572103 15.640646 291,663.784
- --------------------------------------------------------------------------------
Blue Chip Growth
1997 $12.500000 $12.831858 373367.759
1998 12.831858 16.234822 3,048,540.169
- --------------------------------------------------------------------------------
Real Estate Securities
1997 $12.500000 $13.563334 59872.571
1998 13.563334 11.158599 255,677.706
- --------------------------------------------------------------------------------
Value
1997 $12.500000 $12.435876 298712.666
1998 12.435876 12.033566 1,262,760.931
- --------------------------------------------------------------------------------
</TABLE>
G-1
<PAGE> 53
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SUB-ACCOUNT UNIT VALUE AT UNIT VALUE AT NUMBER OF UNITS
START OF YEAR* END OF YEAR AT END OF YEAR
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth & Income
1997 $12.500000 $12.692204 778391.503
1998 12.692204 15.811724 4,876,965.282
- --------------------------------------------------------------------------------
Equity-Income
1997 $12.500000 $13.251413 411414.749
1998 13.251413 14.249466 2,050,162.371
- --------------------------------------------------------------------------------
Income & Value
1997 $12.500000 $12.705736 59162.304
1998 12.705736 14.398732 277,338.588
- --------------------------------------------------------------------------------
Balanced
1997 $12.500000 $12.798613 155469.589
1998 12.798613 14.397307 705,998.837
- --------------------------------------------------------------------------------
High Yield
1997 $12.500000 $12.864277 205432.892
1998 12.864277 13.018749 1,187,037.940
- --------------------------------------------------------------------------------
Strategic Bond
1997 $12.500000 $12.793187 201747.245
1998 12.793187 12.761400 1,279,415.503
- --------------------------------------------------------------------------------
Global Bond
1997 $12.500000 $12.850434 45990.746
1998 12.850434 13.615563 184,398.545
- --------------------------------------------------------------------------------
Investment Quality Bond
1997 $12.500000 $12.932971 75627.863
1998 12.932971 13.845626 795,132.846
- --------------------------------------------------------------------------------
Diversified Bond
1997 $12.500000 $12.768031 25278.234
1998 12.768031 13.914540 162,214.705
- --------------------------------------------------------------------------------
U.S. Government Securities
1997 $12.500000 $12.898929 49384.296
1998 12.898929 13.651980 558,901.273
- --------------------------------------------------------------------------------
Money Market
1997 $12.500000 $12.682927 431878.733
1998 12.682927 13.123053 1,949,743.402
- --------------------------------------------------------------------------------
Lifestyle Aggressive 1000
1997 $12.500000 $12.184094 54685.065
1998 12.184094 12.579492 369,032.152
- --------------------------------------------------------------------------------
Lifestyle Growth 820
1997 $12.500000 $12.418021 722945.165
1998 12.418021 12.985550 2,996,409.085
- --------------------------------------------------------------------------------
Lifestyle Balanced 640
1997 $12.500000 $12.545543 819161.076
1998 12.545543 13.059244 3,939,117.609
- --------------------------------------------------------------------------------
Lifestyle Moderate 460
1997 $12.500000 $12.686656 107584.170
1998 12.686656 13.711730 1,295,671.881
- --------------------------------------------------------------------------------
Lifestyle Conservative 280
1997 $12.500000 $12.839861 47679.118
1998 12.839861 13.933826 839,361.780
- --------------------------------------------------------------------------------
</TABLE>
*Units under the series of contracts were first credited under the sub-account
on August 4, 1997, except in the following instance:
- Small Company Value Trust where units were first credited
under the sub-accounts on October 1, 1997.
G-2
<PAGE> 54
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
MANUFACTURERS LIFE INSURANCE COMPANY
OF NORTH AMERICA
SEPARATE ACCOUNT A
- --------------------------------------------------------------------------------
OF
THE MANUFACTURERS LIFE INSURANCE COMPANY
OF NORTH AMERICA
FLEXIBLE PURCHASE PAYMENT INDIVIDUAL DEFERRED
VARIABLE ANNUITY CONTRACT
NON-PARTICIPATING
This Statement of Additional Information is not a Prospectus. It
contains information in addition to that described in the Prospectus and should
be read in conjunction with the Prospectus dated the same date as this Statement
of Additional Information. The Prospectus may be obtained by writing The
Manufacturers Life Insurance Company of North America at the mailing address of
the Annuity Service Office, P.O. Box 9230, Boston, Massachusetts 02205-9230 or
telephoning (800) 344-1029.
The date of this Statement of Additional Information is May 1, 1999.
The Manufacturers Life Insurance Company of North America
116 Huntington Avenue
Boston, Massachusetts 02116
(617) 266-6004
(618) (800) 344-1029
- --------------------------------------------------------------------------------
VANTAGE.SAI599
<PAGE> 55
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<S> <C>
General Information and History ............................................ 3
Performance Data ........................................................... 3
Services
Independent Auditors ................................................ 9
Servicing Agent ..................................................... 10
Principal Underwriter ............................................... 10
Financial Statements ....................................................... 11
</TABLE>
2
<PAGE> 56
GENERAL INFORMATION AND HISTORY
The Manufacturers Life Insurance Company of North America Separate
Account A (the "VARIABLE ACCOUNT") is a separate investment account of The
Manufacturers Life Insurance Company of North America ("WE" or "US"). We are a
stock life insurance company organized under the laws of Delaware in 1979. Our
principal office is located at 116 Huntington Avenue, Boston, Massachusetts
02116. Our ultimate parent is The Manufacturers Life Insurance Company
("MANULIFE"), a Canadian mutual life insurance company based in Toronto, Canada.
Prior to January 1, 1996, we were a wholly owned subsidiary of North American
Life Assurance Company ("NAL"), a Canadian mutual life insurance company. On
January 1, 1996 NAL and Manulife merged with the combined company retaining the
Manulife name.
On January 20, 1998, the Board of Directors of Manulife asked the
management of Manulife to prepare a plan for conversion of Manulife from a
mutual life insurance company to an investor-owned, publicly-traded stock
company. Any demutualization plan for Manulife is subject to the approval of the
Manulife Board of Directors and Policyholders as well as regulatory approval.
PERFORMANCE DATA
Each of the sub-accounts may in its advertising and sales materials
quote total return figures. The sub-accounts may advertise both "standardized"
and "non-standardized" total return figures, although standardized figures will
always accompany non-standardized figures. Non-standardized total return figures
may be quoted assuming both:
- redemption at the end of the time period, and
- not assuming redemption at the end of the time period.
Standardized figures include total return figures from:
- the inception date of the sub-account of the Variable Account
which invests in the portfolio, or
- ten years, whichever period is shorter.
Non-standardized figures include total return numbers from:
- inception date of the portfolio, or
- ten years, whichever period is shorter.
Such figures will always include the average annual total return for
recent one year and, when applicable, five and ten year periods, and where less
than ten years, the inception date of the sub-account, in the case of
standardized returns, and the inception date of the portfolio, in the case of
non-standardized returns. Where the period since inception is less than one
year, the total return quoted will be the aggregate return for the period. The
average annual total return is the average annual compounded rate of return that
equates a purchase payment to the market value of such purchase payment on the
last day of the period for which such return is calculated. The aggregate total
return is the percentage change (not annualized) that equates a purchase payment
to the market value of such purchase payment on the last day of the period for
which such return is calculated. For purposes of the calculations it is assumed
that an initial payment of $1,000 is made on the first day of the period for
which the return is calculated.
In calculating standardized return figures, all recurring charges (all
asset charges (mortality and expense risk fees and administrative fees)) are
reflected, and the asset charges are reflected in changes in unit values.
Standardized total return figures will be quoted assuming redemption at the end
of the period. Non-standardized total return figures reflecting
3
<PAGE> 57
redemption at the end of the time period are calculated on the same basis as the
standardized returns. Non-standardized total return figures not reflecting
redemption at the end of the time period are calculated on the same basis as the
standardized returns except that the calculations assume no redemption at the
end of the period and does not reflect deduction of the annual contract fee. We
believe such non-standardized figures not reflecting redemptions at the end of
the time period are useful to contract owners who wish to assess the performance
of an ongoing contract of the size that is meaningful to the individual contract
owner.
For total return figures quoted for periods prior to the commencement
of the offering of this contract, August 4, 1997, standardized performance data
will be the historical performance of the Trust portfolio from the date the
applicable sub-account of the Variable Account first became available for
investment under other contracts offered by us, adjusted to reflect current
contract charges. In the case of non-standardized performance, performance
figures will be the historical performance of the Trust portfolio from the
inception date of the portfolio (or in the case of the Trust portfolios created
in connection with the merger of Manulife Series Fund, Inc.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FIGURES
CALCULATED AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
SINCE INCEPTION
OR 10 YEARS, INCEPTION
TRUST PORTFOLIO 1 YEAR 5 YEAR WHICHEVER IS SHORTER DATE*
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pacific Rim Emerging Markets -13.28% N/A -24.65% 01/01/97
- -------------------------------------------------------------------------------------
Science & Technology 32.54% N/A 20.54% 01/01/97
- -------------------------------------------------------------------------------------
International Small Cap 1.56% N/A 3.29% 03/04/96
- -------------------------------------------------------------------------------------
Aggressive Growth -5.24% N/A -3.44% 01/01/97
- -------------------------------------------------------------------------------------
Emerging Small Company -9.07% N/A 2.99% 01/01/97
- -------------------------------------------------------------------------------------
Mid Cap Growth 17.74% N/A 13.53% 03/04/96
- -------------------------------------------------------------------------------------
Overseas -1.97% N/A 3.54% 01/09/95
- -------------------------------------------------------------------------------------
International Stock 4.57% N/A 2.81% 01/01/97
- -------------------------------------------------------------------------------------
Mid Cap Blend -0.66% 14.81% 12.21% 06/18/85
- -------------------------------------------------------------------------------------
Small Company Value -13.39% N/A -14.81% 10/01/97
- -------------------------------------------------------------------------------------
Global Equity 1.95% 8.20% 8.93% 03/18/88
- -------------------------------------------------------------------------------------
Growth 13.47% N/A 20.13% 07/15/96
- -------------------------------------------------------------------------------------
Large Cap Growth 8.71% 11.76% 9.04% 08/03/89
- -------------------------------------------------------------------------------------
Quantitative Equity 15.83% N/A 23.11% 01/01/97
- -------------------------------------------------------------------------------------
Blue Chip Growth 17.94% 17.32% 13.05% 12/11/92
- -------------------------------------------------------------------------------------
Real Estate Securities -23.95% N/A -4.82% 01/01/97
- -------------------------------------------------------------------------------------
Value -10.68% N/A 3.80% 01/01/97
- -------------------------------------------------------------------------------------
Growth and Income 16.00% 19.84% 16.41% 04/23/91
- -------------------------------------------------------------------------------------
Equity-Income -0.83% 13.61% 13.75% 02/19/93
- -------------------------------------------------------------------------------------
Income & Value 4.74% 9.11% 7.83% 08/03/89
- -------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 58
<TABLE>
<CAPTION>
SINCE INCEPTION
OR 10 YEARS, INCEPTION
TRUST PORTFOLIO 1 YEAR 5 YEAR WHICHEVER IS SHORTER DATE*
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balanced 3.91% N/A 10.76% 01/01/97
- -------------------------------------------------------------------------------------
High Yield -6.62% N/A 1.80% 01/01/97
- -------------------------------------------------------------------------------------
Strategic Bond -7.95% 4.94% 5.65% 02/19/93
- -------------------------------------------------------------------------------------
Global Bond -2.28% 5.07% 7.55% 03/18/88
- -------------------------------------------------------------------------------------
Investment Quality Bond -1.27% 4.16% 4.21%+ 06/18/85
- -------------------------------------------------------------------------------------
Diversified Bond 0.49% 6.20% 6.29% 08/03/89
- -------------------------------------------------------------------------------------
U.S. Government Securities -2.38% 3.86% 6.38%+ 03/18/88
- -------------------------------------------------------------------------------------
Money Market -4.55% 2.18% 3.59%+ 06/18/85
- -------------------------------------------------------------------------------------
Lifestyle Aggressive 1000 -4.75% N/A 2.05% 01/07/97
- -------------------------------------------------------------------------------------
Lifestyle Growth 820 -3.54% N/A 4.24% 01/07/97
- -------------------------------------------------------------------------------------
Lifestyle Balanced 640 -3.98% N/A 4.12% 01/07/97
- -------------------------------------------------------------------------------------
Lifestyle Moderate 460 -0.33% N/A 6.06% 01/07/97
- -------------------------------------------------------------------------------------
Lifestyle Conservative 280 0.07% N/A 5.51% 01/07/97
- -------------------------------------------------------------------------------------
</TABLE>
* Inception date of the sub-account of the Variable Account which invests in the
portfolio.
+ 10 year average annual return.
5
<PAGE> 59
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FIGURES
(ASSUMING REDEMPTION AT THE END OF THE TIME PERIOD)
CALCULATED AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
SINCE INCEPTION
OR 10 YEARS, INCEPTION
TRUST PORTFOLIO 1 YEAR 5 YEAR WHICHEVER IS SHORTER DATE*
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pacific Rim Emerging Markets* -13.28% N/A -9.87% 10/04/94
Science & Technology 32.54% N/A 20.54% 01/01/97
International Small Cap 1.56% N/A 3.29% 03/04/96
Aggressive Growth -5.24% N/A -3.44% 01/01/97
Emerging Small Company -9.07% N/A 2.99% 01/01/97
Mid Cap Growth 17.74% N/A 13.53% 03/04/96
Overseas -1.97% N/A 3.54% 01/09/95
International Stock 4.57% N/A 2.81% 01/01/97
Mid Cap Blend -0.66% 14.81% 12.21%+ 06/18/85
Small Company Value -13.39% N/A -14.39% 10/01/97
Global Equity 1.95% 8.20% 8.93%+ 03/18/88
Growth 13.47% N/A 20.13% 07/15/96
Large Cap Growth 8.71% 11.76% 9.04% 08/03/89
Quantitative Equity* 15.83% 16.54% 14.89%+ 04/30/87
Blue Chip Growth 17.94% 17.32% 13.05% 12/11/92
Real Estate Securities* -23.95% 5.65% 10.78%+ 04/30/87
Value -10.68% N/A 3.80% 01/01/97
Growth and Income 16.00% 19.84% 16.41% 04/23/91
Equity-Income -0.83% 13.61% 13.75% 02/19/93
Income & Value 4.74% 9.11% 7.83%+ 08/03/89
Balanced 3.91% N/A 10.76% 01/01/97
High Yield -6.62% N/A 1.80% 01/01/97
Strategic Bond -7.95% 4.94% 5.65% 02/19/93
Global Bond -2.28% 5.07% 7.55%+ 03/18/88
Investment Quality Bond -1.27% 4.16% 4.21%+ 06/18/85
- -------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 60
<TABLE>
<CAPTION>
SINCE INCEPTION
OR 10 YEARS, INCEPTION
TRUST PORTFOLIO 1 YEAR 5 YEAR WHICHEVER IS SHORTER DATE*
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------
Diversified Bond 0.49% 6.20% 6.29% 08/03/89
- -------------------------------------------------------------------------------------
U.S. Government Securities -2.38% 3.86% 6.38%+ 03/18/88
- -------------------------------------------------------------------------------------
Money Market -4.55% 2.18% 3.59%+ 06/18/85
- -------------------------------------------------------------------------------------
Lifestyle Aggressive 1000 -4.75% N/A 2.05% 01/07/97
- -------------------------------------------------------------------------------------
Lifestyle Growth 820 -3.54% N/A 4.24% 01/07/97
- -------------------------------------------------------------------------------------
Lifestyle Balanced 640 -3.98% N/A 4.12% 01/07/97
- -------------------------------------------------------------------------------------
Lifestyle Moderate 460 -0.33% N/A 6.06% 01/07/97
- -------------------------------------------------------------------------------------
Lifestyle Conservative 280 0.07% N/A 5.51% 01/07/97
- -------------------------------------------------------------------------------------
</TABLE>
+ 10 year average annual return.
*Performance for each of these sub-accounts is based upon the historical
performance of the portfolio, adjusted to reflect current contract charges. On
December 31, 1996, Manulife Series Fund, Inc. merged with the Trust. Performance
for each of these sub-accounts is based on the historical performance of the
respective predecessor Manulife Series Fund, Inc. portfolio for periods prior to
December 31, 1996.
7
<PAGE> 61
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FIGURES
(ASSUMING NO REDEMPTION AT THE END OF THE TIME PERIOD)
CALCULATED AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
SINCE INCEPTION
OR 10 YEARS, INCEPTION
TRUST PORTFOLIO 1 YEAR 5 YEAR WHICHEVER IS SHORTER DATE*
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pacific Rim Emerging Markets* -6.08% N/A -8.65% 10/04/94
- -------------------------------------------------------------------------------------
Science & Technology 41.12% N/A 24.10% 01/01/97
- -------------------------------------------------------------------------------------
International Small Cap 10.14% N/A 5.99% 03/04/96
- -------------------------------------------------------------------------------------
Aggressive Growth 2.72% N/A 0.57% 01/01/97
- -------------------------------------------------------------------------------------
Emerging Small Company -1.47% N/A 7.12% 01/01/97
- -------------------------------------------------------------------------------------
Mid Cap Growth 26.32% N/A 15.82% 03/04/96
- -------------------------------------------------------------------------------------
Overseas 6.29% N/A 5.17% 01/09/95
- -------------------------------------------------------------------------------------
International Stock 13.15% N/A 6.96% 01/01/97
- -------------------------------------------------------------------------------------
Mid Cap Blend 7.72% 15.55% 12.26%+ 06/18/85
- -------------------------------------------------------------------------------------
Small Company Value -6.19% N/A -8.70% 10/01/97
- -------------------------------------------------------------------------------------
Global Equity 10.53% 9.13% 8.99%+ 03/18/88
- -------------------------------------------------------------------------------------
Growth 22.05% N/A 22.67% 07/15/96
- -------------------------------------------------------------------------------------
Large Cap Growth 17.29% 12.58% 9.11% 08/03/89
- -------------------------------------------------------------------------------------
Quantitative Equity* 24.41% 17.25% 14.94%+ 04/30/87
- -------------------------------------------------------------------------------------
Blue Chip Growth 26.52% 18.01% 13.49% 12/11/92
- -------------------------------------------------------------------------------------
Real Estate Securities* -17.73% 6.66% 10.83%+ 04/30/87
- -------------------------------------------------------------------------------------
Value -3.24% N/A 7.90% 01/01/97
- -------------------------------------------------------------------------------------
Growth and Income 24.58% 20.48% 16.61% 04/23/91
- -------------------------------------------------------------------------------------
Equity-Income 7.53% 14.39% 14.26% 02/19/93
- -------------------------------------------------------------------------------------
Income & Value 13.32% 10.01% 7.90% 08/03/89
- -------------------------------------------------------------------------------------
Balanced 12.49% N/A 14.62% 01/01/97
- -------------------------------------------------------------------------------------
High Yield 1.20% N/A 5.98% 01/01/97
- -------------------------------------------------------------------------------------
Strategic Bond -0.25% 5.99% 6.36% 02/19/93
- -------------------------------------------------------------------------------------
Global Bond 5.95% 6.11% 7.60%+ 03/18/88
- -------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 62
<TABLE>
<CAPTION>
SINCE INCEPTION
OR 10 YEARS, INCEPTION
TRUST PORTFOLIO 1 YEAR 5 YEAR WHICHEVER IS SHORTER DATE*
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Quality Bond 7.06% 5.24% 4.28%+ 06/18/85
- -------------------------------------------------------------------------------------
Diversified Bond 8.98% 7.20% 6.37% 08/03/89
- -------------------------------------------------------------------------------------
U.S. Government Securities 5.84% 4.95% 6.44%+ 03/18/88
- -------------------------------------------------------------------------------------
Money Market 3.47% 3.34% 3.66%+ 06/18/85
- -------------------------------------------------------------------------------------
Lifestyle Aggressive 1000 3.25% N/A 6.25% 01/07/97
- -------------------------------------------------------------------------------------
Lifestyle Growth 820 4.57% N/A 8.36% 01/07/97
- -------------------------------------------------------------------------------------
Lifestyle Balanced 640 4.09% N/A 8.24% 01/07/97
- -------------------------------------------------------------------------------------
Lifestyle Moderate 460 8.08% N/A 10.12% 01/07/97
- -------------------------------------------------------------------------------------
Lifestyle Conservative 280 8.52% N/A 9.58% 01/07/97
- -------------------------------------------------------------------------------------
</TABLE>
+ 10 year average annual return.
*Performance for each of these sub-accounts is based upon the historical
performance of the portfolio, adjusted to reflect current contract charges. On
December 31, 1996, Manulife Series Fund, Inc. merged with the Trust. Performance
for each of these sub-accounts is based on the historical performance of the
respective predecessor Manulife Series Fund, Inc. portfolio for periods prior to
December 31, 1996.
* * * * *
In addition to the non-standardized returns quoted above, each of the
sub-accounts may from time to time quote aggregate non-standardized total
returns calculated in the same manner as set forth above for other time periods.
From time to time the Trust may include in its advertising and sales literature
general discussions of economic theories, including but not limited to,
discussions on how demographic and political trends can affect the financial
markets. Further, the Trust may also include in its advertising and sales
literature specific information on each of the Trust's subadvisers, including
but not limited to, research capabilities of a subadviser, assets under
management, information relating to other clients of a subadviser, and other
generalized information.
SERVICES
INDEPENDENT AUDITORS
The financial statements of the Company at December 31, 1998 and 1997
and for three years ended December 31, 1998 and for the Variable Account at
December 31, 1998 and for the two years in the period then ended appearing in
this Statement of Additional Information have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
Our financial statements which are included in this Statement of
Additional Information should be considered only as bearing on our ability to
meet our obligations under the contracts. They should not be considered as
bearing on the investment performance of the assets held in the Variable
Account.
9
<PAGE> 63
SERVICING AGENT
Computer Sciences Corporation Financial Services Group ("CSC FSG")
provides to us a computerized data processing recordkeeping system for variable
annuity administration. CSC FSG provides various daily, semimonthly, monthly,
semiannual and annual reports including:
- daily updates on:
- accumulation unit values
- variable annuity participants and transaction
- agent production and commissions;
- semimonthly commission statements;
- monthly summaries of agent production and daily transaction
reports;
- semiannual statements for contract owners; and
- annual contract owner tax reports.
We pay CSC FSG approximately $7.80 per policy per year, plus certain other fees
for the services provided.
PRINCIPAL UNDERWRITER
Manufacturers Securities Services, LLC ("MSS"), the successor to NASL
Financial Services, Inc., a Delaware limited liability company controlled by us,
serves as principal underwriter of the contracts. Contracts are offered on a
continuous basis. The aggregate dollar amount of underwriting commissions paid
to MSS in 1998 and 1997 was $122,828,714 and $29,615,342 respectively. The
aggregate dollar amount of underwriting commissions paid to NASL Financial
Services, Inc. in 1997 and 1996 were $75,864,399 and $83,031,288, respectively.
MSS did not retain any of these amounts during such periods.
10
<PAGE> 64
FINANCIAL STATEMENTS
11
<PAGE> 65
AUDITED FINANCIAL STATEMENTS
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF NORTH AMERICA
SEPARATE ACCOUNT A
Years ended December 31, 1998 and 1997
<PAGE> 66
The Manufacturers Life Insurance Company of North America
Separate Account A
Audited Financial Statements
Years ended December 31, 1998 and 1997
CONTENTS
Report of Independent Auditors............................................... 1
Audited Financial Statements
Statement of Assets and Contract Owners' Equity............................. 2
Statements of Operations and Changes in Contract Owners' Equity............. 4
Notes to Financial Statements............................................... 17
<PAGE> 67
Report of Independent Auditors
To the Contract Owners of
The Manufacturers Life Insurance Company of
North America Separate Account A
We have audited the accompanying statement of assets and contract owners' equity
of The Manufacturers Life Insurance Company of North America Separate Account A
of The Manufacturers Life Insurance Company of North America as of December 31,
1998, and the related statements of operations and changes in contract owners'
equity for each of the two years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Manufacturers Life
Insurance Company of North America Separate Account A at December 31, 1998, and
the results of its operations and the changes in its contract owners' equity for
each of the two years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 15, 1999
1
<PAGE> 68
The Manufacturers Life Insurance Company of North America
Separate Account A
Statement of Assets and Contract Owners' Equity
December 31, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments at market value:
Sub-accounts held by Manufacturers Investment Trust:
Equity Portfolio--70,153,843 shares (cost $1,394,262,193) $1,366,596,869
Investment Quality Bond Portfolio--17,255,422 shares (cost
$205,380,597) 215,002,564
Growth and Income Portfolio--72,412,451 shares (cost
$1,437,245,539) 2,058,685,981
Blue Chip Growth Portfolio--51,932,822 shares (cost $761,642,611)
982,569,000
Money Market Portfolio--46,650,864 shares (cost $466,508,635) 466,508,635
Global Equity Portfolio--41,770,878 shares (cost $729,838,802) 851,290,500
Global Government Bond Portfolio--13,584,129 shares (cost
$182,025,319) 186,510,088
U.S. Government Securities Portfolio--17,162,813 shares (cost
$228,158,658) 237,190,082
Conservative Asset Allocation Portfolio--15,687,564 shares (cost
$171,934,308) 185,583,876
Moderate Asset Allocation Portfolio--43,423,370 shares (cost
$501,927,612) 579,267,762
Aggressive Asset Allocation Portfolio--15,637,643 shares (cost
$196,854,791) 238,630,437
Equity-Income Portfolio--50,117,795 shares (cost $763,489,488) 891,094,394
Strategic Bond Portfolio--25,678,995 shares (cost $302,571,752) 300,957,827
International Growth and Income Portfolio--17,023,984 shares
(cost $188,871,120) 192,711,494
Growth Portfolio--10,975,313 shares (cost $187,150,428) 224,993,924
Small/Mid Cap Portfolio--17,539,949 shares (cost $272,381,577) 346,764,786
International Small Cap Portfolio--6,868,968 shares (cost
$98,967,859) 104,957,831
Pacific Rim Emerging Markets Portfolio--1,688,201 shares (cost
$10,920,142) 11,530,410
Science & Technology Portfolio--7,007,642 shares (cost
$107,208,623) 136,789,175
Emerging Small Company Trust Portfolio--2,289,074 shares (cost
$52,526,543) 54,525,739
Pilgrim Baxter Growth Portfolio--4,510,511 shares (cost
$54,865,363) 58,817,062
International Stock Portfolio--4,275,981 shares (cost
$53,456,822) 55,502,238
Worldwide Growth Portfolio--2,249,703 shares (cost $32,559,587)
34,082,996
Quantitative Equity Portfolio--2,680,476 shares (cost
$60,144,014) 67,601,598
Value Trust Portfolio--10,014,905 shares (cost $150,703,384) 140,809,560
</TABLE>
2
<PAGE> 69
The Manufacturers Life Insurance Company of North America
Separate Account A
Statement of Assets and Contract Owners' Equity (continued)
December 31, 1998
<TABLE>
<S> <C>
ASSETS (CONTINUED)
Investments at market value (continued):
Sub-accounts held by Manufacturers Investment Trust (continued):
Real Estate Securities Portfolio--2,593,566 shares (cost
$45,937,873) $ 38,306,963
Balanced Portfolio--3,854,279 shares (cost $72,418,904) 74,773,004
High Yield Portfolio--9,662,687 shares (cost $132,336,671) 124,841,912
Capital Growth Bond Portfolio--902,029 shares (cost $10,637,950)
10,905,528
Lifestyle Aggressive 1000 Portfolio--4,396,045 shares (cost
$58,684,265) 58,863,042
Lifestyle Growth 820 Portfolio--21,338,547 shares (cost
$290,633,031) 294,045,173
Lifestyle Balanced 640 Portfolio--22,715,975 shares (cost
$304,652,511) 306,438,509
Lifestyle Moderate 460 Portfolio--8,322,504 shares (cost
$111,615,746) 115,766,034
Lifestyle Conservative 280 Portfolio--4,887,132 shares (cost
$63,505,234) 66,122,902
Small Company Value Portfolio--5,725,189 shares (cost
$67,847,667) 65,095,402
Sub-accounts held by Merrill Lynch Variable Series Funds, Inc.:
Basic Value Focus Portfolio--230,973 shares (cost $3,304,521) 3,383,761
Developing Capital Markets Focus Portfolio--37,559 shares (cost
$277,352) 241,128
Special Value Focus Portfolio--63,893 shares (cost $1,329,010) 1,274,025
------------------
Total assets $11,149,032,211
==================
CONTRACT OWNERS' EQUITY
Variable annuity contracts $11,134,609,842
Annuity reserves 14,422,369
------------------
Total contract owners' equity $11,149,032,211
==================
</TABLE>
See accompanying notes.
3
<PAGE> 70
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in
Contract Owners' Equity
<TABLE>
<CAPTION>
SUB-ACCOUNT
----------------------------------------------------------------------------------------------
EQUITY INVESTMENT QUALITY BOND GROWTH AND INCOME
----------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1998 1997 1998 1997
----------------------------------------------------------------------------------------------
Income:
<S> <C> <C> <C> <C> <C> <C>
Dividends $262,896,468 $239,269,167 $ 9,380,173 $ 9,576,201 $104,185,784 $73,308,031
Expenses:
Mortality and expense risk
and administrative charges 19,254,747 18,590,890 2,619,222 2,055,365 24,518,612 17,452,904
-----------------------------------------------------------------------------------------------
Net investment income (loss) 243,641,721 220,678,277 6,760,951 7,520,836 79,667,172 55,855,127
Net realized gain (loss) 31,286,927 71,678,786 3,524,700 1,351,339 120,361,648 58,828,368
Unrealized appreciation
(depreciation) during the
period (174,185,950) (85,271,449) 2,142,373 2,582,281 182,367,957 202,291,723
-----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations 100,742,698 207,085,614 12,428,024 11,454,456 382,396,777 316,975,218
Changes from principal
transactions:
Purchase payments 94,757,279 118,050,368 34,025,800 22,380,599 248,202,994 195,949,225
Transfers between sub-
accounts and the
Company (73,281,664) (119,918,534) 27,481,604 (4,673,249) 109,065,836 74,410,407
Withdrawals (127,824,175) (90,755,116) (18,664,400) (14,678,287) (142,936,147) (86,137,166)
Annual contract fee (627,094) (659,929) (56,911) (56,865) (612,633) (502,835)
-----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions (106,975,654) (93,283,212) 42,786,093 2,972,198 213,720,050 183,719,631
-----------------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity (6,232,956) 113,802,403 55,214,117 14,426,654 596,116,827 500,694,849
Contract owners' equity at
beginning of period 1,372,829,825 1,259,027,422 159,788,447 145,361,793 1,462,569,154 961,874,305
-----------------------------------------------------------------------------------------------
Contract owners' equity at end
of period $1,366,596,869 $1,372,829,825 $215,002,564 $159,788,447 $2,058,685,981 $1,462,569,154
===============================================================================================
</TABLE>
See accompanying notes.
4
<PAGE> 71
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
------------------------------------------------------------------------------------------
BLUE CHIP GROWTH MONEY MARKET GLOBAL EQUITY
------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1998 1997 1998 1997
------------------------------------------------------------------------------------------
Income:
<S> <C> <C> <C> <C> <C> <C>
Dividends $13,929,066 $71,469,602 $21,461,471 $17,013,261 $59,603,230 $68,544,055
Expenses:
Mortality and expense risk
and administrative charges 10,658,625 7,222,500 6,194,641 4,845,927 12,014,172 10,725,251
-------------------------------------------------------------------------------------------
Net investment income (loss) 3,270,441 64,247,102 15,266,830 12,167,334 47,589,058 57,818,804
Net realized gain (loss) 61,124,930 32,146,244 192,043 (42,506) 27,283,864 23,088,990
Unrealized appreciation
(depreciation) during the
period 123,565,136 13,739,445 6,192,769 49,786,950
-------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations 187,960,507 110,132,791 15,458,873 12,124,828 81,065,691 130,694,744
Changes from principal transactions:
Purchase payments 142,511,048 103,821,671 280,358,533 275,133,419 61,937,777 66,651,712
Transfers between sub-
accounts and the
Company 70,636,247 52,434,431 (41,216,927) (165,452,428) (27,166,058) (18,665,979)
Withdrawals (50,972,213) (30,741,388) (115,055,612) (90,042,016) (71,777,066) (55,723,933)
Annual contract fee (266,440) (209,155) (111,391) (103,157) (372,022) (383,153)
-------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions 161,908,642 125,305,559 123,974,603 19,535,818 (37,377,369) (8,121,353)
-------------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity 349,869,149 235,438,350 139,433,476 31,660,646 43,688,322 122,573,391
Contract owners' equity at
beginning of period 632,699,851 397,261,501 327,075,159 295,414,513 807,602,178 685,028,787
-------------------------------------------------------------------------------------------
Contract owners' equity at end
of period $982,569,000 $632,699,851 $466,508,635 $327,075,159 $851,290,500 $807,602,178
===========================================================================================
</TABLE>
See accompanying notes.
5
<PAGE> 72
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
-----------------------------------------------------------------------------------------------
GLOBAL GOVERNMENT BOND U.S. GOVERNMENT SECURITIES CONSERVATIVE ASSET ALLOCATION
-----------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1998 1997 1998 1997
------------------------------------------------------------------------------------------------
Income:
<S> <C> <C> <C> <C> <C> <C>
Dividends $18,973,842 $19,326,548 $ 9,103,890 $11,671,420 $17,570,424 $17,400,745
Expenses:
Mortality and expense risk
and administrative charges 2,750,057 3,118,976 2,945,305 2,556,850 2,625,650 2,741,328
----------------------------------------------------------------------------------------------
Net investment income (loss) 16,223,785 16,207,572 6,158,585 9,114,570 14,944,774 14,659,417
Net realized gain (loss) 898,854 439,716 4,428,098 (527,162) 3,497,458 3,400,777
Unrealized appreciation
(depreciation) during the
period (5,780,204) (14,053,773) 1,035,564 3,410,682 (1,878,860) 31,815
----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations 11,342,435 2,593,515 11,622,247 11,998,090 16,563,372 18,092,009
Changes from principal
transactions:
Purchase payments 9,584,824 14,851,627 40,913,770 35,382,893 7,937,011 8,346,286
Transfers between sub-
accounts and the
Company (21,994,571) (31,446,736) 19,072,298 (25,230,072) (6,943,504) (3,474,315)
Withdrawals (18,770,928) (19,532,235) (23,285,802) (20,453,897) (26,555,234) (28,533,376)
Annual contract fee (77,219) (97,030) (66,701) (70,092) (92,857) (108,689)
----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions (31,257,894) (36,224,374) 36,633,565 (10,371,168) (25,654,584) (23,770,094)
----------------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity (19,915,459) (33,630,859 ) 48,255,812 1,626,922 (9,091,212) (5,678,085)
Contract owners' equity at
beginning of period 206,425,547 240,056,406 188,934,270 187,307,348 194,675,088 200,353,173
----------------------------------------------------------------------------------------------
Contract owners' equity at end
of period $186,510,088 $206,425,547 $237,190,082 $188,934,270 $185,583,876 $194,675,088
==============================================================================================
</TABLE>
See accompanying notes.
6
<PAGE> 73
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
----------------------------------------------------------------------------------------------
MODERATE ASSET ALLOCATION AGGRESSIVE ASSET ALLOCATION EQUITY INCOME
----------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1998 1997 1998 1997
----------------------------------------------------------------------------------------------
Income:
<S> <C> <C> <C> <C> <C> <C>
Dividends $64,146,035 $58,267,634 $26,290,872 $20,896,965 $50,288,949 $78,618,574
Expenses:
Mortality and expense risk
and administrative charges 8,092,103 8,189,303 3,191,540 3,066,563 12,044,210 9,490,476
----------------------------------------------------------------------------------------------
Net investment income (loss) 56,053,932 50,078,331 23,099,332 17,830,402 38,244,739 69,128,098
Net realized gain (loss) 14,458,530 20,924,486 9,700,147 8,142,652 45,466,323 27,303,367
Unrealized appreciation
(depreciation) during the
period 2,472,822 6,583,533 3,631,032 8,717,054 (23,107,903) 66,190,180
----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations 72,985,284 77,586,350 36,430,511 34,690,108 60,603,159 162,621,645
Changes from principal
transactions:
Purchase payments 18,958,426 21,885,718 10,964,443 12,256,277 103,523,597 104,660,103
Transfers between sub-
accounts and the
Company (17,040,289) (54,800,932) (5,795,331) (15,819,095) (18,384,431) 45,522,432
Withdrawals (71,094,567) (67,053,011) (24,226,715) (21,820,832) (60,748,536) (39,782,767)
Annual contract fee (329,687) (376,642) (156,682) (174,213) (292,490) (264,381)
----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions (69,506,117) (100,344,867) (19,214,285) (25,557,863) 24,098,140 110,135,387
-----------------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity 3,479,167 (22,758,517) 17,216,226 9,132,245 84,701,299 272,757,032
Contract owners' equity at
beginning of period 575,788,595 598,547,112 221,414,211 212,281,966 806,393,095 533,636,063
----------------------------------------------------------------------------------------------
Contract owners' equity at end
of period $579,267,762 $575,788,595 $238,630,437 $221,414,211 $891,094,394 $806,393,095
==============================================================================================
</TABLE>
See accompanying notes.
7
<PAGE> 74
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
----------------------------------------------------------------------------------------------
INTERNATIONAL
STRATEGIC BOND GROWTH AND INCOME GROWTH
----------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1998 1997 1998 1997
----------------------------- ----------------------------------------------------------------
Income:
<S> <C> <C> <C> <C> <C> <C>
Dividends $19,762,976 $13,993,910 $10,783,616 $10,918,983 $ 6,498,283 $ 2,064
Expenses:
Mortality and expense risk
and administrative charges 4,220,177 3,393,458 2,772,206 2,671,634 2,460,324 1,315,949
----------------------------------------------------------------------------------------------
Net investment income (loss) 15,542,799 10,600,452 8,011,410 8,247,349 4,037,959 (1,313,885)
Net realized gain (loss) 5,827,370 6,548,108 (4,242,482) 6,276,433 7,868,700 3,969,308
Unrealized appreciation
(depreciation) during the
period (22,293,148) 4,322,181 6,890,254 (17,080,972) 23,267,491 13,523,093
----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations (922,979) 21,470,741 10,659,182 (2,557,190) 35,174,150 16,178,516
Changes from principal
transactions:
Purchase payments 59,587,164 61,132,738 22,213,738 34,462,322 46,724,068 42,821,722
Transfers between sub-
accounts and the
Company (16,016,161) 16,015,847 (9,290,437) (12,884,732) 20,642,796 22,684,133
Withdrawals (21,651,946) (15,800,829) (13,365,800) (10,478,961) (9,558,754) (3,950,420)
Annual contract fee (81,880) (74,181) (72,465) (76,258) (54,268) (28,627)
----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions 21,837,177 61,273,575 (514,964) 11,022,371 57,753,842 61,526,808
----------------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity 20,914,198 82,744,316 10,144,218 8,465,181 92,927,992 77,705,324
Contract owners' equity at
beginning of period 280,043,629 197,299,313 182,567,276 174,102,095 132,065,932 54,360,608
----------------------------------------------------------------------------------------------
Contract owners' equity at end
of period $300,957,827 $280,043,629 $192,711,494 $182,567,276 $224,993,924 $132,065,932
==============================================================================================
</TABLE>
See accompanying notes.
8
<PAGE> 75
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
-------------------------------------------------------------------------------------------------
SMALL/MID CAP INTERNATIONAL SMALL CAP PACIFIC RIM EMERGING MARKETS
-------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1998 1997 1998 1997
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 336,534 $ 51,091 $ 24,903
Expenses:
Mortality and expense risk
and administrative charges $3,976,254 $2,776,348 1,517,775 1,495,775 $ 137,686 63,490
------------------------------------------------------------------------------------------
Net investment income (loss) (3,976,254) (2,776,348) (1,181,241) (1,444,684) (137,686) (38,587)
Net realized gain (loss) 20,349,494 5,544,039 6,105,663 3,758,747 (2,090,591) (1,283,209)
Unrealized appreciation
(depreciation) during the
period 51,762,373 19,443,445 5,595,158 (3,090,673) 1,949,020 (1,338,752)
-----------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations 68,135,613 22,211,136 10,519,580 (776,610) (279,257) (2,660,548)
Changes from principal transactions:
Purchase payments 46,950,104 53,732,677 11,129,043 25,874,645 3,553,787 5,401,201
Transfers between sub-
accounts and the
Company 8,700,217 10,377,888 (11,727,965) (9,494,657) 1,253,352 4,903,144
Withdrawals (17,277,732) (9,275,089) (6,285,382) (5,113,149) (497,351) (139,755)
Annual contract fee (102,955) (79,115) (42,473) (41,050) (3,324) (839)
-------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions 38,269,634 54,756,361 (6,926,777) 11,225,789 4,306,464 10,163,751
-------------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity 106,405,247 76,967,497 3,592,803 10,449,179 4,027,207 7,503,203
Contract owners' equity at
beginning of period 240,359,539 163,392,042 101,365,028 90,915,849 7,503,203
-------------------------------------------------------------------------------------------
Contract owners' equity at end
of period $346,764,786 $240,359,539 $104,957,831 $101,365,028 $11,530,410 $7,503,203
===========================================================================================
</TABLE>
See accompanying notes.
9
<PAGE> 76
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
---------------------------------------------------------------------------------------
EMERGING SMALL COMPANY
SCIENCE AND TECHNOLOGY TRUST PILGRIM BAXTER GROWTH
---------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31
1998 1997 1998 1997 1998 1997
---------------------------------------------------------------------------------------
Income:
<S> <C> <C> <C> <C> <C> <C>
Dividends $ 873,736 $ 606,644
Expenses:
Mortality and expense risk
and administrative charges $ 1,202,138 397,473 644,336 $ 244,267 $ 725,112 $378,926
---------------------------------------------------------------------------------------
Net investment income (loss) (1,202,138) 476,263 (37,692) (244,267) (725,112) (378,926)
Net realized gain (loss) 2,838,592 862,369 (840,697) 1,689,252 302,011 (4,272)
Unrealized appreciation
(depreciation) during the
period 32,860,184 (3,279,632) 754,323 1,244,873 2,526,128 1,425,571
---------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations 34,496,638 (1,941,000) (124,066) 2,689,858 2,103,027 1,042,373
Changes from principal transactions:
Purchase payments 34,212,705 28,700,891 16,370,893 16,793,570 12,805,688 24,174,018
Transfers between sub-
accounts and the
Company 16,789,653 29,505,144 532,221 21,563,046 514,103 21,686,668
Withdrawals (4,130,388) (811,869) (2,520,170) (763,760) (2,807,192) (678,547)
Annual contract fee (26,696) (5,903) (12,785) (3,068) (17,850) (5,226)
---------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions 46,845,274 57,388,263 14,370,159 37,589,788 10,494,749 45,176,913
---------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity 81,341,912 55,447,263 14,246,093 40,279,646 12,597,776 46,219,286
Contract owners' equity at
beginning of period 55,447,263 0 40,279,646 0 46,219,286 0
---------------------------------------------------------------------------------------
Contract owners' equity at end
of period $136,789,175 $55,447,263 $54,525,739 $40,279,646 $ 58,817,062 $46,219,286
=========================================================================================
</TABLE>
See accompanying notes.
Effective November 1, 1998, the Emerging Growth Sub-Account was renamed Emerging
Small Company Trust through a vote of the Board of Directors.
10
<PAGE> 77
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
---------------------------------------------------------------------------------------------
INTERNATIONAL STOCK WORLDWIDE GROWTH QUANTITATIVE EQUITY
---------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1998 1997 1998 1997
---------------------------------------------------------------------------------------------
Income:
<S> <C> <C> <C> <C> <C> <C>
Dividends $ 862,935 $ 502,025 $ 172,999 $ 171,241 $ 4,541,776
Expenses:
Mortality and expense risk
and administrative charges 674,016 273,695 395,448 135,977 640,582 $ 137,434
----------------------------------------------------------------------------------------------
Net investment income (loss) 188,919 228,330 (222,449) 35,264 3,901,194 (137,434)
Net realized gain (loss) 2,364,955 215,723 525,371 227,718 449,434 358,162
Unrealized appreciation
(depreciation) during the
period 3,503,979 (1,458,563) 1,343,334 180,075 6,170,135 1,287,449
----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations 6,057,853 (1,014,510) 1,646,256 443,057 10,520,763 1,508,177
Changes from principal
transactions:
Purchase payments 13,225,216 19,620,377 11,495,901 11,388,148 20,771,816 11,381,942
Transfers between sub-
accounts and the
Company 2,851,294 17,915,598 2,347,570 8,324,039 12,619,124 13,657,744
Withdrawals (2,491,971) (646,006) (1,286,241) (267,075) (2,437,925) (405,906)
Annual contract fee (13,680) (1,933) (7,427) (1,232) (11,798) (2,339)
-----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions 13,570,859 36,888,036 12,549,803 19,443,880 30,941,217 24,631,441
-----------------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity 19,628,712 35,873,526 14,196,059 19,886,937 41,461,980 26,139,618
Contract owners' equity at
beginning of period 35,873,526 19,886,937 26,139,618
-----------------------------------------------------------------------------------------------
Contract owners' equity at end
of period $55,502,238 $35,873,526 $34,082,996 $19,886,937 $67,601,598 $26,139,618
=============================================================================================-
</TABLE>
See accompanying notes.
11
<PAGE> 78
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
---------------------------------------------------------------------------------------------
VALUE TRUST REAL ESTATE SECURITIES BALANCED
---------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1998 1997 1998 1997
---------------------------------------------------------------------------------------------
Income:
<S> <C> <C> <C> <C> <C> <C>
Dividends $ 4,638,914 $ 2,689,347 $ 4,863,628 $ 4,362,693
Expenses:
Mortality and expense risk
and administrative charges 1,782,489 486,817 550,805 $ 228,065 638,257 $ 150,866
----------------------------------------------------------------------------------------------
Net investment income (loss) 2,856,425 2,202,530 4,312,823 (228,065) 3,724,436 (150,866)
Net realized gain (loss) 1,138,053 541,216 (902,342) 295,630 247,184 256,879
Unrealized appreciation
(depreciation) during the
period (10,157,046) 263,222 (10,990,491) 3,359,581 1,131,212 1,222,888
----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations (6,162,568) 3,006,968 (7,580,010) 3,427,146 5,102,832 1,328,901
Changes from principal
transactions:
Purchase payments 49,908,355 48,382,252 11,906,485 13,091,725 26,732,376 15,888,339
Transfers between sub-
accounts and the
Company 14,640,406 37,456,120 2,566,730 18,128,028 22,894,698 5,629,987
Withdrawals (5,344,005) (1,043,743) (2,469,360) (749,394) (2,463,299) (330,644)
Annual contract fee (29,966) (4,259) (10,774) (3,613) (9,365) (821)
----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions 59,174,790 84,790,370 11,993,081 30,466,746 47,154,410 21,186,861
-----------------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity 53,012,222 87,797,338 4,413,071 33,893,892 52,257,242 22,515,762
Contract owners' equity at
beginning of period 87,797,338 33,893,892 22,515,762
-----------------------------------------------------------------------------------------------
Contract owners' equity at end
of period $140,809,560 $87,797,338 $38,306,963 $33,893,892 $74,773,004 $22,515,762
===============================================================================================
</TABLE>
See accompanying notes.
12
<PAGE> 79
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
--------------------------------------------------------------------------------------------
HIGH YIELD CAPITAL GROWTH BOND LIFESTYLE AGGRESSIVE 1000
--------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31
1998 1997 1998 1997 1998 1997
--------------------------------------------------------------------------------------------
Income:
<S> <C> <C> <C> <C> <C>
Dividends $ 8,887,481 $ 2,135,102 $ 264,547 $ 2,636,383 $ 237,194
Expenses:
Mortality and expense risk
and administrative charges 1,432,205 331,892 95,375 $ 23,398 723,027 269,924
-----------------------------------------------------------------------------------------
Net investment income (loss) 7,455,276 1,803,210 169,172 (23,398) 1,913,356 (32,730)
Net realized gain (loss) 308,573 490,122 135,919 64,894 809,716 351,951
Unrealized appreciation
(depreciation) during the
period (7,507,180) 12,421 156,238 111,340 (1,147,651) 1,326,428
-----------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations 256,669 2,305,753 461,329 152,836 1,575,421 1,645,649
Changes from principal transactions:
Purchase payments 57,459,954 34,480,584 3,886,790 2,378,537 21,969,123 27,666,649
Transfers between sub-
accounts and the
Company 15,683,299 21,582,628 3,612,080 677,347 (1,521,360) 11,510,544
Withdrawals (5,903,448) (1,003,593) (227,645) (34,729) (3,165,862) (788,594)
Annual contract fee (17,792) (2,142) (891) (126) (25,491) (3,037)
----------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions 67,222,013 55,057,477 7,270,334 3,021,029 17,256,410 38,385,562
----------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity 67,478,682 57,363,230 7,731,663 3,173,865 18,831,831 40,031,211
Contract owners' equity at
beginning of period 57,363,230 3,173,865 40,031,211
----------------------------------------------------------------------------------------
Contract owners' equity at end
of period $124,841,912 $57,363,230 $10,905,528 $3,173,865 $58,863,042 $40,031,211
========================================================================================
</TABLE>
See accompanying notes.
13
<PAGE> 80
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
---------------------------------------------------------------------------------------------
LIFESTYLE GROWTH 820 LIFESTYLE BALANCED 640 LIFESTYLE MODERATE 460
----------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1998 1997 1998 1997
---------------------------------------------------------------------------------------------
Income:
<S> <C> <C> <C> <C> <C> <C>
Dividends $14,111,619 $ 1,919,754 $13,670,797 $ 2,096,508 $ 3,839,085 $ 683,968
Expenses:
Mortality and expense risk
and administrative charges 3,455,069 1,182,975 3,423,557 769,100 1,151,712 270,936
-----------------------------------------------------------------------------------------------
Net investment income (loss) 10,656,550 736,779 10,247,240 1,127,408 2,673,373 413,032
Net realized gain (loss) 2,139,936 701,940 1,544,172 405,934 878,683 188,826
Unrealized appreciation
(depreciation) during the
period (2,785,080) 6,197,222 (3,124,500) 4,910,498 2,974,288 1,176,000
-----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations 10,011,406 7,635,941 8,666,912 6,443,840 6,540,344 1,777,858
Changes from principal
transactions:
Purchase payments 110,072,582 124,787,100 136,038,997 109,585,494 54,357,743 34,707,149
Transfers between sub-
accounts and the
Company 5,245,489 49,397,612 14,223,902 47,685,861 14,002,683 8,719,380
Withdrawals (10,385,720) (2,638,434) (12,460,337) (3,689,366) (3,921,846) (402,607)
Annual contract fee (72,269) (8,534) (51,951) (4,843) (13,485) (1,185)
----------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions 104,860,082 171,537,744 137,750,611 153,577,146 64,425,095 43,022,737
-----------------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity 114,871,488 179,173,685 146,417,523 160,020,986 70,965,439 44,800,595
Contract owners' equity at
beginning of period 179,173,685 160,020,986 44,800,595
-----------------------------------------------------------------------------------------------
Contract owners' equity at end
of period $294,045,173 $179,173,685 $306,438,509 $160,020,986 $115,766,034 $44,800,595
===============================================================================================
</TABLE>
See accompanying notes.
14
<PAGE> 81
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
-----------------------------------------------------------------------------------------
LIFESTYLE CONSERVATIVE 280 SMALL COMPANY VALUE (2) BASIC VALUE FOCUS (3)
-----------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, PERIOD ENDED DECEMBER 31, PERIOD ENDED DECEMBER 31,
1998 1997 1998 1997 1998 1997
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 1,713,067 $ 259,709 $ 19,377 $ 53,970
Expenses:
Mortality and expense risk
and administrative charges 556,830 100,989 606,307 $ 35,127 21,001 $ 324
------------------------------------------------------------------------------------------
Net investment income (loss) 1,156,237 158,720 (586,930) (35,127) 32,969 (324)
Net realized gain (loss) 271,648 1,381 (582,960) (220) (18,194) 4,325
Unrealized appreciation
(depreciation) during the
period 2,119,282 498,386 (2,538,730) (213,535) 80,592 (1,352)
------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations 3,547,167 658,487 (3,708,620) (248,882) 95,367 2,649
Changes from principal transactions:
Purchase payments 33,166,004 13,240,905 28,591,491 4,592,023 2,636,532 306,338
Transfers between sub-
accounts and the
Company 14,381,167 3,508,965 25,105,906 12,576,387 331,091 38,957
Withdrawals (2,280,020) (94,919) (1,762,784) (41,086) (27,056) (25)
Annual contract fee (4,485) (369) (8,494) (539) (92) 0
------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions 45,262,666 16,654,582 51,926,119 17,126,785 2,940,475 345,270
------------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity 48,809,833 17,313,069 48,217,499 16,877,903 3,035,842 347,919
Contract owners' equity at
beginning of period 17,313,069 16,877,903 347,919 0
------------------------------------------------------------------------------------------
Contract owners' equity at end
of period $66,122,902 $17,313,069 $65,095,402 $16,877,903 $3,383,761 $347,919
=========================================================================================-
</TABLE>
(2) From commencement of operations October 1, 1997.
(3) From commencement of operations October 13, 1997.
See accompanying notes.
15
<PAGE> 82
The Manufacturers Life Insurance Company of North America
Separate Account A
Statements of Operations and Changes in Contract
Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
--------------------------------------------------------------------------------------------
DEVELOPING CAPITAL MARKETS
FOCUS (3) SPECIAL VALUE FOCUS (3) TOTAL
--------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, PERIOD ENDED DECEMBER 31, PERIOD ENDED DECEMBER 31,
1998 1997 1998 1997 1998 1997
--------------------------------------------------------------------------------------------
Income:
<S> <C> <C> <C> <C> <C> <C>
Dividends $ 388 $ 57,259 $760,515,175 $721,921,738
Expenses:
Mortality and expense risk
and administrative charges 1,933 $ 54 10,495 $ 315 140,724,000 107,391,541
--------------------------------------------------------------------------------------------
Net investment income (loss) (1,545) (54) 46,764 (315) 619,791,175 614,530,197
Net realized gain (loss) (7,758) (9,818) (77,295) (891) 367,566,677 278,189,604
Unrealized appreciation
(depreciation) during the
period (46,006) 9,782 (50,244) (4,741) 198,898,651 288,054,676
--------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
operations (55,309) (90) (80,775) (5,947) 1,186,256,503 1,180,774,477
Changes from principal transactions:
Purchase payments 279,236 12,381 1,000,154 199,113 1,890,721,447 1,744,172,738
Transfers between sub-
accounts and the
Company (12,556) 19,497 117,665 54,768 174,920,177 94,125,873
Withdrawals (2,025) (10,841) (36) (886,646,495) (624,402,560)
Annual contract fee (6) (76) (3,754,865) (3,355,380)
--------------------------------------------------------------------------------------------
Net increase (decrease) in
contract owners' equity from
principal transactions 264,649 31,878 1,106,902 253,845 1,175,240,264 1,210,540,671
--------------------------------------------------------------------------------------------
Total increase (decrease) in
contract owners' equity 209,340 31,788 1,026,127 247,898 2,361,496,767 2,391,315,148
Contract owners' equity at
beginning of period 31,788 247,898 8,787,535,444 6,396,220,296
--------------------------------------------------------------------------------------------
Contract owners' equity at end
of period $241,128 $31,788 $1,274,025 $247,898 $11,149,032,211 $8,787,535,444
============================================================================================
</TABLE>
(3) From commencement of operations October 13, 1997.
See accompanying notes.
16
<PAGE> 83
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements
December 31, 1998
1. ORGANIZATION
The Manufacturers Life Insurance Company of North America Separate Account A
(the Account) is a separate account established by The Manufacturers Life
Insurance Company of North America (the Company). The Account operates as a Unit
Investment Trust under the Investment Company Act of 1940, as amended, and
invests in thirty-five sub-accounts of Manufacturers Investment Trust (the
Trust) and three subaccounts of Merrill Lynch Variable Series Funds, Inc. The
Account is a funding vehicle for variable annuity contracts (the Contracts)
issued by the Company. The Account includes seventeen contracts, distinguished
principally by the level of expenses and surrender charges. These seventeen
contracts are as follows: Venture Variable Annuity 1, 3, 7, 8, 17, 18, 20, 21,
22, 23, 25, 26 and 27 (VEN 1, 3, 7, 8, 17, 18, 20, 21, 22, 23, 25, 26 and 27),
Venture Vantage Annuity (VTG20), Venture Vision Variable Annuity 5 and 25 (VIS 5
and 25) and Venture No-load Rollover Annuity (MRP). The Company is a
wholly-owned subsidiary of Manulife Wood Logan Holding Company, Inc. (MWL) MWL
holds all the outstanding shares of the Company and Wood Logan Associates, Inc.
(Wood Logan). The Manufacturers Life Insurance Company (MLI) owns all Class A
shares of MWL, representing 85% of the voting shares of MWL. Certain employees
of Wood Logan own all Class B shares, which represent the remaining 15% voting
interest in MWL.
On October 1, 1997, the new sub-account, Small Company Value, commenced
operations.
On October 13, 1997, an agreement was entered into with Merrill Lynch Variable
Series Funds, Inc. For contracts purchased through Merrill Lynch brokers,
contract owners of the Account have an additional three portfolios available as
investment options - Basic Value Focus, Developing Capital Markets Focus and
Special Value Focus portfolios.
2. SIGNIFICANT ACCOUNTING POLICIES
Investments are made in the portfolios of the Trust and are valued at the
reported net asset values of such portfolios. Transactions are recorded on the
trade date. Income from dividends is recorded on the ex-dividend date. Realized
gains and losses on the sales of investments are computed on the basis of the
identified cost of the investment sold.
17
<PAGE> 84
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In addition to the Account, a contract holder may also allocate funds to the
Fixed Account, which is part of the Company's general account. Because of
exemptive and exclusionary provisions, interests in the Fixed Account have not
been registered under the Securities Act of 1933, and the Company's general
account has not been registered as an investment company under the Investment
Company Act of 1940.
Annuity reserves are computed for contracts under which periodic benefit
payments are being made according to the 1983a Individual Annuitant Mortality
Table. The assumed investment return is 4%, as regulated by the laws of the
respective states. The mortality risk is fully borne by the Company and may
result in additional amounts being transferred into the Account by the Company.
The operations of the Account are included in the federal income tax return of
the Company, which is taxed as a life insurance company under the provisions of
the Internal Revenue Code (the Code). Under the current provisions of the Code,
the Company does not expect to incur federal income taxes on the earnings of the
Account to the extent the earnings are credited under the contracts. Based on
this, no charge is being made currently to the Account for federal income taxes.
The Company will review periodically the status of such decision based on
changes in the tax law. Such a charge may be made in future years for any
federal income taxes that would be attributable to the contract.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Such estimates and assumptions could change in the future as more information
becomes known, which could impact the amounts reported and disclosed herein.
18
<PAGE> 85
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
3. AFFILIATED COMPANY TRANSACTIONS
Administrative services necessary for the operation of the Account are performed
by the Company. The Company had an underwriting agreement with its wholly-owned
subsidiary, NASL Financial Services, Inc. (NASL Financial). NASL Financial had
an agreement with Wood Logan to promote the sale of annuity contracts. On
October 1, 1997, NASL Financial ceased operations, and certain assets and
liabilities of NASL Financial were contributed to form a new company,
Manufacturers Securities Services LLC (MSS), for a 99.9% ownership interest by
MNA. MSS has an Administrative Services Agreement with Wood Logan for marketing
services for the sale of annuity contracts. Certain officers of the Account are
officers and directors of the Company or the Trust.
4. CONTRACT CHARGES
There are no deductions made from purchase payments for sales charges at the
time of purchase. In the event of a surrender, a contingent deferred sales
charge may be charged by the Company to cover sales expenses. An annual
administrative fee of $30 is generally deducted from each contract owners'
account on the contract anniversary date to cover contract administration costs.
This charge is waived on certain contracts.
Deductions from each sub-account are made daily for administrative fees and for
the assumption of mortality and expense risk charges as follows:
(i) Prior Contract Series (VEN 1): deductions from each sub-account are made
daily for the assumption of mortality and expense risks equal to an
effective annual rate of 1.30% of the contract value.
(ii) Current Contract Series (VEN 3, 7, 8, 17, 18, 20, 21, 22, 23, 25, 26, 27):
deductions from each sub-account are made daily for administration and for
the assumption of mortality and expense risks equal to an effective annual
rate of 0.15% and 1.25% of the contract value, respectively.
(iii) Current Contract Series (VEN 25, 26, 27): offered in Merrill Lynch Series
Funds only (Basic Value Focus, Developing Capital Markets Focus and
Special Value Focus portfolios): deductions from each sub-account are made
daily for administration and for the assumption of mortality and expense
risks equal to an effective annual rate of 0.15% and 1.25% of the contract
value, respectively.
19
<PAGE> 86
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
4. CONTRACT CHARGES (CONTINUED)
(iv) Current Contract Series (VIS 5, 25): deductions from each sub-account are
made daily for distribution fees, administration and for the assumption of
mortality and expense risks equal to an effective annual rate of 0.15%,
0.25% and 1.25% of the contract value, respectively.
(v) Current Contract Series (VTG20): deductions from each sub-account are made
daily for distribution fees, administration and for the assumption of
mortality and expense risks equal to an effective annual rate of 0.15%,
0.25% and 1.15% of the contract value, respectively.
(vi) Current Contract Series (MRP): deductions from each sub-account are made
daily for administration and for the assumption of mortality and expense
risks equal to an effective annual rate of 0.15% and .85% of the contract
value, respectively.
5. PURCHASES AND SALES OF INVESTMENTS
The following table shows aggregate cost of shares purchased and proceeds from
sales of each subaccount for the year ended December 31, 1998.
<TABLE>
<CAPTION>
PURCHASES SALES
--------- -----
<S> <C> <C>
Equity Portfolio $479,741,018 $343,074,951
Investment Quality Bond Portfolio 112,111,379 62,564,335
Growth and Income Portfolio 562,336,214 268,948,992
Blue Chip Growth Portfolio 364,638,988 199,459,905
Money Market Portfolio 1,372,851,333 1,233,645,575
Global Equity Portfolio 183,884,265 173,672,576
Global Government Bond Portfolio 40,927,644 55,961,753
U.S. Government Securities Portfolio 153,578,415 110,786,265
Conservative Asset Allocation Portfolio 40,324,640 51,034,450
Moderate Asset Allocation Portfolio 92,266,453 105,718,638
Aggressive Asset Allocation Portfolio 56,089,844 52,204,797
Equity-Income Portfolio 243,506,676 181,163,797
Strategic Bond Portfolio 115,383,169 78,003,193
International Growth and Income Portfolio 294,292,701 286,796,255
Growth Portfolio 94,385,448 32,593,647
Small/Mid Cap Portfolio 133,780,502 99,487,122
International Small Cap Portfolio 104,371,817 112,479,835
Pacific Rim Emerging Markets Portfolio 39,179,942 35,011,164
</TABLE>
20
<PAGE> 87
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
<TABLE>
<S> <C> <C>
Science & Technology Portfolio 87,080,119 41,436,983
</TABLE>
21
<PAGE> 88
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
5. PURCHASES AND SALES OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
PURCHASES SALES
--------- -----
<S> <C> <C>
Emerging Small Company Trust Portfolio $52,882,325 $38,549,858
Pilgram Baxter Growth Portfolio 34,192,791 24,423,154
International Stock Portfolio 170,444,695 156,684,917
Worldwide Growth Portfolio 21,398,837 9,071,483
Quantitative Equity Portfolio 50,000,082 15,157,671
Value Trust Portfolio 84,850,110 22,818,895
Real Estate Securities Portfolio 29,299,997 12,994,093
Balanced Portfolio 56,734,376 5,855,530
High Yield Portfolio 120,155,384 45,478,095
Capital Growth Bond Portfolio 10,757,183 3,317,677
Lifestyle Aggressive 1000 Portfolio 36,826,575 17,661,271
Lifestyle Growth 820 Portfolio 150,738,678 35,244,725
Lifestyle Balanced 640 Portfolio 189,754,832 41,795,908
Lifestyle Moderate 460 Portfolio 80,883,176 13,784,335
Lifestyle Conservative 280 Portfolio 54,072,066 7,662,329
Small Company Value Portfolio 66,199,280 14,860,091
Basic Value Focus Portfolio 3,172,085 198,641
Developing Capital Markets Focus Portfolio 293,027 29,923
Special Value Focus Portfolio 1,451,744 298,078
-------------------------------------------
Total $5,784,837,810 $3,989,930,907
===========================================
</TABLE>
22
<PAGE> 89
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
6. UNIT VALUES
A summary of the accumulation unit values at December 31, 1998 and 1997 and the
accumulation units and dollar value outstanding at December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
1997 1998
---------- ------------------------------------------------
UNIT UNIT
VALUE VALUE UNITS DOLLARS
---------- ------------------------------------------------
<S> <C> <C> <C> <C>
Equity Sub-Account:
VEN 1 Contracts $47.690851 $51.507214 14,155 $ 729,084
VEN 3,7,8,17,18,20,21,22,23 Contracts 29.002593 31.289551 40,111,249 1,255,062,966
VIS 5 and 25 Contracts 21.347335 22.973151 3,859,705 88,669,575
VTG20 Contracts 12.479231 13.443090 1,557,309 20,935,046
MRP Contracts 12.103394 4,815 58,276
----------------------------
45,547,233 1,365,454,947
Investment Quality Bond Sub-Account:
VEN 1 Contracts 21.192677 22.746879 7,009 159,438
VEN 3,7,8,17,18,20,21,22,23 Contracts 18.336912 19.660365 9,246,667 181,792,848
VIS 5 and 25 Contracts 12.435620 13.299876 1,647,839 21,916,061
VTG20 Contracts 12.932971 13.845626 795,133 11,009,112
MRP Contracts 13.269922 87 1,161
----------------------------
11,696,735 214,878,620
Growth and Income Sub-Account:
VEN 3,7,8,17,18,20,21,22,23 Contracts 26.431239 32.976967 54,748,109 1,805,426,595
VIS 5 and 25 Contracts 20.936844 26.056725 6,665,098 173,670,629
VTG20 Contracts 12.692204 15.811724 4,876,965 77,113,229
MRP Contracts 13.924321 6,874 95,720
----------------------------
66,297,046 2,056,306,173
Blue Chip Growth Sub-Account:
VEN 3,7,8,17,18,20,21,22,23 Contracts 17.134232 21.710674 38,326,272 832,089,198
VIS 5 and 25 Contracts 17.859518 22.573222 4,405,818 99,453,501
VTG20 Contracts 12.831858 16.234822 3,048,540 49,492,507
MRP Contracts 14.123586 8,341 117,810
----------------------------
45,788,971 981,153,016
</TABLE>
23
<PAGE> 90
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
6. UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
1997 1998
---------- ------------------------------------------------
UNIT UNIT
VALUE VALUE UNITS DOLLARS
---------- ------------------------------------------------
<S> <C> <C> <C> <C>
Money Market Sub-Account:
VEN 1 Contracts $16.660935 $17.283692 4,497 $ 77,731
VEN 3,7,8,17,18,20,21,22,23 Contracts 15.241915 15.794513 23,796,095 375,847,731
VIS 5 and 25 Contracts 11.427217 11.811952 5,223,565 61,700,494
VTG20 Contracts 12.682927 13.123053 1,949,743 25,586,586
MRP Contracts 12.872909 4,306 55,435
----------------------------
30,978,206 463,267,977
Global Equity Sub-Account:
VEN 3,7,8,17,18,20,21,22,23 Contracts 21.770913 24.098970 31,875,269 768,161,151
VIS 5 and 25 Contracts 16.941296 18.706100 3,552,566 66,454,653
VTG20 Contracts 12.616506 13.944724 1,124,989 15,687,657
MRP Contracts 12.195410 673 8,205
----------------------------
36,553,497 850,311,666
Global Government Bond Sub-Account:
VEN 3,7,8,17,18,20,21,22,23 Contracts 20.104158 21.333144 7,899,403 168,519,101
VIS 5 and 25 Contracts 13.995892 14.814388 1,028,813 15,241,241
VTG20 Contracts 12.850434 13.615563 184,399 2,510,690
----------------------------
9,112,615 186,271,032
U.S. Government Securities Sub-Account
VEN 3,7,8,17,18,20,21,22,23 Contracts 17.535478 18.587049 11,047,912 205,348,087
VIS 5 and 25 Contracts 12.294922 12.999698 1,851,052 24,063,117
VTG20 Contracts 12.898929 13.651980 558,901 7,630,109
MRP Contracts 13.159699 4,841 63,700
----------------------------
13,462,706 237,105,013
Conservative Asset Allocation Sub Account
VEN 3,7,8,17,18,20,21,22,23 Contracts 16.607511 18.125951 9,403,847 170,453,670
VIS 5 and 25 Contracts 13.469181 14.663990 865,840 12,696,676
VTG20 Contracts 12.768031 13.914540 162,215 2,257,143
MRP Contracts 13.161158 140 1,839
----------------------------
10,432,042 185,409,328
</TABLE>
24
<PAGE> 91
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
6. UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
1997 1998
---------- ------------------------------------------------
UNIT UNIT
VALUE VALUE UNITS DOLLARS
---------- ------------------------------------------------
<S> <C> <C> <C> <C>
Moderate Asset Allocation Sub-Account
VEN 3,7,8,17,18,20,21,22,23 Contracts $18.276161 $20.742457 26,356,304 $ 546,694,510
VIS 5 and 25 Contracts 14.861563 16.824988 1,669,568 28,090,467
VTG20 Contracts 12.705736 14.398732 277,339 3,993,324
MRP Contracts 13.179250 1,855 24,446
----------------------------
28,305,066 578,802,747
Aggressive Asset Allocation Sub-Account
VEN 3,7,8,17,18,20,21,22,23 Contracts 19.614359 23.040505 9,781,994 225,382,077
VIS 5 and 25 Contracts 16.200363 18.982681 537,933 10,211,404
VTG20 Contracts 12.605559 14.785253 191,997 2,838,722
MRP Contracts 13.271688 310 4,111
----------------------------
10,512,234 238,436,314
Equity-Income Sub-Account
VEN 3,7,8,17,18,20,21,22,23 Contracts 20.479412 22.054902 35,047,678 772,973,098
VIS 5 and 25 Contracts 19.357272 20.794388 4,185,547 87,035,890
VTG20 Contracts 13.251413 14.249466 2,050,162 29,213,719
MRP Contracts 12.464044 27,051 337,171
----------------------------
41,310,438 889,559,878
Strategic Bond Sub-Account
VEN 3,7,8,17,18,20,21,22,23 Contracts 14.500997 14.486687 17,404,030 252,126,736
VIS 5 and 25 Contracts 14.293477 14.243718 2,251,815 32,074,224
VTG20 Contracts 12.793187 12.761400 1,279,416 16,327,133
MRP Contracts 12.280627 148 1,815
----------------------------
20,935,409 300,529,908
International Growth and Income Sub-Account
VEN 3,7,8,17,18,20,21,22,23 Contracts 11.545714 12.290162 13,756,310 169,067,280
VIS 5 and 25 Contracts 11.460078 12.168562 1,449,574 17,639,234
VTG20 Contracts 11.688584 12.423604 463,081 5,753,129
MRP Contracts 11.720466 331 3,874
----------------------------
15,669,296 192,463,517
</TABLE>
25
<PAGE> 92
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
6. UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
1997 1998
---------- ------------------------------------------------
UNIT UNIT
VALUE VALUE UNITS DOLLARS
---------- ------------------------------------------------
<S> <C> <C> <C> <C>
Growth Sub-Account
VEN 3,7,8,17,18,20,21,22,23 Contracts $16.968111 $20.739989 9,102,251 $ 188,780,577
VIS 5 and 25 Contracts 16.906185 20.612746 1,026,177 21,152,324
VTG20 Contracts 12.257373 14.959659 995,527 14,892,751
MRP Contracts 13.655376 521 7,117
----------------------------
11,124,476 224,832,769
Small Mid-Cap Sub-Account
VEN 3,7,8,17,18,20,21,22,23 Contracts 15.020670 19.002856 15,666,416 297,706,642
VIS 5 and 25 Contracts 14.952186 18.869029 1,713,492 32,331,921
VTG20 Contracts 12.153015 15.351927 1,055,512 16,204,136
MRP Contracts 13.903872 3,648 50,724
----------------------------
18,439,068 346,293,423
International Small-Cap Sub-Account
VEN 3,7,8,17,18,20,21,22,23 Contracts 13.410016 14.792077 6,216,716 91,958,149
VIS 5 and 25 Contracts 13.348864 14.687879 604,725 8,882,126
VTG20 Contracts 11.841960 13.042850 306,705 4,000,303
MRP Contracts 12.202690 335 4,084
----------------------------
7,128,481 104,844,662
Pacific Rim Emerging Markets Sub-Account
VEN 3,7,8,17,18,20,21,22,23 Contracts 8.180904 7.695249 1,213,457 9,337,856
VIS 5 and 25 Contracts 8.160547 7.656925 187,393 1,434,856
VTG20 Contracts 7.956465 7.472906 100,760 752,969
----------------------------
1,501,610 11,525,681
Science & Technology Sub-Account
VEN 3,7,8,17,18,20,21,22,23 Contracts 13.647195 19.287390 5,502,072 106,120,604
VIS 5 and 25 Contracts 13.613317 19.191525 888,003 17,042,132
VTG20 Contracts 10.983380 15.499402 867,806 13,450,481
MRP Contracts 15.503436 4,016 62,256
----------------------------
7,261,897 136,675,473
</TABLE>
26
<PAGE> 93
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
6. UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
1997 1998
---------- ------------------------------------------------
UNIT UNIT
VALUE VALUE UNITS DOLLARS
---------- ------------------------------------------------
<S> <C> <C> <C> <C>
Emerging Small Company Trust Sub-Account
VEN 3,7,8,17,18,20,21,22,23 Contracts $14.574077 $14.381705 2,969,177 $ 42,701,829
VIS 5 and 25 Contracts 14.537900 14.310172 413,474 5,916,882
VTG20 Contracts 13.088401 12.896270 447,688 5,773,507
MRP Contracts 11.312902 6,458 73,062
----------------------------
3,836,797 54,465,280
Pilgrim Baxter Sub-Account
VEN 3,7,8,17,18,20,21,22,23 Contracts 12.327066 12.680777 3,725,002 47,235,921
VIS 5 and 25 Contracts 12.296448 12.617679 614,146 7,749,096
VTG20 Contracts 11.595531 11.910371 318,767 3,796,638
MRP Contracts 12.027610 216 2,598
----------------------------
4,658,131 58,784,253
International Stock Sub-Account
VEN 3,7,8,17,18,20,21,22,23 Contracts 12.652231 14.337171 2,959,452 42,430,166
VIS 5 and 25 Contracts 12.620816 14.265882 594,123 8,475,684
VTG20 Contracts 11.346605 12.838403 357,482 4,589,492
----------------------------
3,911,057 55,495,342
Worldwide Growth Sub-Account
VEN 3,7,8,17,18,20,21,22,23 Contracts 13.965674 14.936768 1,600,451 23,905,561
VIS 5 and 25 Contracts 13.931008 14.862507 453,662 6,742,552
VTG20 Contracts 12.232350 13.063326 256,317 3,348,357
MRP Contracts 12.283121 4,072 50,016
----------------------------
2,314,502 34,046,486
Quantitative Equity Sub-Account
VEN 3,7,8,17,18,20,21,22,23 Contracts 16.107191 20.068624 2,593,685 52,051,683
VIS 5 and 25 Contracts 16.067235 19.968902 548,348 10,949,898
VTG20 Contracts 12.572103 15.640646 291,664 4,561,810
MRP Contracts 14.006399 2,087 29,237
----------------------------
3,435,784 67,592,628
</TABLE>
27
<PAGE> 94
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
6. UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
1997 1998
---------- ------------------------------------------------
UNIT UNIT
VALUE VALUE UNITS DOLLARS
---------- ------------------------------------------------
<S> <C> <C> <C> <C>
Value Trust Sub-Account
VEN 3,7,8,17,18,20,21,22,23 Contracts $15.057118 $14.591878 7,174,748 $ 104,693,044
VIS 5 and 25 Contracts 15.019763 14.519332 1,435,554 20,843,278
VTG20 Contracts 12.435876 12.033566 1,262,761 15,195,517
MRP Contracts 11.207507 406 4,550
----------------------------
9,873,469 140,736,389
Real Estate Securities Sub-Account
VEN 3,7,8,17,18,20,21,22,23 Contracts 14.949140 12.317190 2,390,788 29,447,794
VIS 5 and 25 Contracts 14.912035 12.255908 485,218 5,946,786
VTG20 Contracts 13.563334 11.158599 255,678 2,853,005
MRP Contracts 10.417728 1,081 11,263
----------------------------
3,132,765 38,258,848
Balanced Sub-Account
VEN 3,7,8,17,18,20,21,22,23 Contracts 14.609853 16.459454 3,129,307 51,506,681
VIS 5 and 25 Contracts 14.573591 16.377624 789,475 12,929,731
VTG20 Contracts 12.798613 14.397307 705,999 10,164,482
MRP Contracts 13.203432 914 12,070
----------------------------
4,625,695 74,612,964
High Yield Sub-Account
VEN 3,7,8,17,18,20,21,22,23 Contracts 13.890491 14.078376 5,797,619 81,621,061
VIS 5 and 25 Contracts 13.856003 14.008370 1,976,302 27,684,776
VTG20 Contracts 12.864277 13.018749 1,187,038 15,453,749
MRP Contracts 12.279967 2,098 25,764
----------------------------
8,963,057 124,785,350
Capital Growth Bond Sub-Account
VEN 3,7,8,17,18,20,21,22,23 Contracts 13.475788 14.344530 515,451 7,393,903
VIS 5 and 25 Contracts 13.442339 14.273209 107,315 1,531,727
VTG20 Contracts 12.877605 13.687241 133,750 1,830,668
MRP Contracts 13.268578 531 7,043
----------------------------
757,047 10,763,341
</TABLE>
28
<PAGE> 95
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
6. UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
1997 1998
---------- ------------------------------------------------
UNIT UNIT
VALUE VALUE UNITS DOLLARS
---------- ------------------------------------------------
<S> <C> <C> <C> <C>
Lifestyle Aggressive 1000 Sub-Account
VEN 3,7,8,17,18,20,21,22,23 Contracts $13.669625 $14.134419 3,525,951 $ 49,837,264
VIS 5 and 25 Contracts 13.635694 14.064128 311,375 4,379,212
VTG20 Contracts 12.184094 12.579492 369,032 4,642,237
MRP Contracts 11.895710 364 4,329
----------------------------
4,206,722 58,863,042
Lifestyle Growth 820 Sub-Account
VEN 3,7,8,17,18,20,21,22,23 Contracts 14.033299 14.696667 14,981,514 220,178,320
VIS 5 and 25 Contracts 13.998474 14.623605 2,386,030 34,892,353
VTG20 Contracts 12.418021 12.985550 2,996,409 38,910,020
MRP Contracts 12.159849 5,303 64,480
----------------------------
20,369,256 294,045,173
Lifestyle Balanced 640 Sub-Account
VEN 3,7,8,17,18,20,21,22,23 Contracts 14.066417 14.664362 14,555,034 213,440,283
VIS 5 and 25 Contracts 14.031517 14.591457 2,829,572 41,287,584
VTG20 Contracts 12.545543 13.059244 3,939,118 51,441,898
MRP Contracts 12.282889 6,978 85,710
----------------------------
21,330,702 306,255,475
Lifestyle Moderate 460 Sub-Account
VEN 3,7,8,17,18,20,21,22,23 Contracts 14.016704 15.171965 4,959,220 75,241,109
VIS 5 and 25 Contracts 13.981923 15.096548 1,502,576 22,683,707
VTG20 Contracts 12.686656 13.711730 1,295,672 17,765,903
MRP Contracts 12.868825 5,853 75,315
----------------------------
7,763,321 115,766,034
Lifestyle Conservative 280 Sub-Account
VEN 3,7,8,17,18,20,21,22,23 Contracts 13.825120 15.025549 2,783,974 41,830,743
VIS 5 and 25 Contracts 13.790807 14.950846 840,562 12,567,117
VTG20 Contracts 12.839861 13.933826 839,362 11,695,521
MRP Contracts 13.175636 2,241 29,521
----------------------------
4,466,139 66,122,902
</TABLE>
29
<PAGE> 96
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
6. UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
1997 1998
---------- -------------------------------------------------
UNIT UNIT
VALUE VALUE UNITS DOLLARS
---------- -------------------------------------------------
<S> <C> <C> <C> <C>
Small Company Value Sub-Account
VEN 3,7,8,17,18,20,21,22,23 Contracts $11.898363 $11.178700 4,268,318 $ 47,714,247
VIS 5 and 25 Contracts 11.890948 11.143828 889,556 9,913,057
VTG20 Contracts 11.893914 11.157770 660,345 7,367,977
----------------------------
5,818,219 64,995,281
Basic Value Focus Sub-Account
VEN 25 Contracts 15.792005 17.018200 92,741 1,578,283
VEN 26 Contracts 15.792005 17.018200 74,372 1,265,677
VEN 27 Contracts 15.792005 17.018200 10,623 180,789
Venture/Vantage 12.027400 29,849 359,008
----------------------------
207,585 3,383,757
Developing Capital Market Focus Sub-Account
VEN 25 Contracts 9.191866 6.389100 29,568 188,914
VEN 26 Contracts 9.191866 6.389100 4,390 28,049
Venture/Vantage 9.694900 2,493 24,165
----------------------------
36,451 241,128
Special Value Focus Sub-Account
VEN 25 Contracts 27.655848 25.494200 23,981 611,377
VEN 26 Contracts 27.655848 25.494200 14,178 361,459
VEN 27 Contracts 27.655848 25.494200 111 2,836
Venture/Vantage 10.568700 28,230 298,353
----------------------------
66,500 1,274,025
----------------------------
TOTAL $11,134,609,842
===============
</TABLE>
30
<PAGE> 97
The Manufacturers Life Insurance Company of North America
Separate Account A
Notes to Financial Statements (continued)
7. DIVERSIFICATION REQUIREMENTS
Under the provisions of Section 817(h) of the Internal Revenue Code, a variable
annuity contract other than a contract issued in connection with certain types
of employee benefits plans, will not be treated as an annuity contract for
federal tax purposes for any period for which the investments of the segregated
asset account on which the contract is based are not adequately diversified. The
Code provides that the "adequately diversified" requirement may be met if the
underlying investments satisfy either a statutory safe harbor test or
diversification requirements set forth in regulations issued by the Secretary of
Treasury.
The Internal Revenue Service has issued regulations under Section 817(h) of the
Code. The Company believes that the Account satisfies the current requirements
of the regulations, and it intends that the Account will continue to meet such
requirements.
8. YEAR 2000 ISSUES (UNAUDITED)
The Year 2000 risk is the result of computer programs being written using two
digits, rather than four, to define the applicable year. Any of the Company's
Computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. The effects of the Year 2000
risk may be experienced before, on, or after January 1, 2000 and, if not
addressed, could result in systems failures or miscalculations causing
disruptions of normal business operations. It is not possible to be certain that
the Company's Year 2000 program will fully resolve all aspects of the Year 2000
risk, including those related to third parties.
31
<PAGE> 98
AUDITED CONSOLIDATED
FINANCIAL STATEMENTS
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF NORTH AMERICA
Years ended December 31, 1998, 1997 and 1996
<PAGE> 99
The Manufacturers Life Insurance Company of North America
Audited Consolidated
Financial Statements
Years ended December 31, 1998, 1997 and 1996
CONTENTS
Report of Independent Auditors............................................1
Audited Consolidated Financial Statements
Consolidated Balance Sheets...............................................2
Consolidated Statements of Income.........................................3
Consolidated Statements of Changes in Shareholder's Equity................4
Consolidated Statements of Cash Flows.....................................5
Notes to Consolidated Financial Statements................................6
<PAGE> 100
Report of Independent Auditors
The Board of Directors and Shareholder
The Manufacturers Life Insurance Company of North America
We have audited the accompanying consolidated balance sheets of The
Manufacturers Life Insurance Company of North America (formerly North American
Security Life Insurance Company and hereinafter referred to as the Company) as
of December 31, 1998 and 1997, and the related consolidated statements of
income, changes in shareholder's equity, and cash flows for each of the three
years in the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Manufacturers Life Insurance Company of North America at December 31, 1998 and
1997, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
Boston, Massachusetts
February 22, 1999
/s/ Ernst & Young LLP
<PAGE> 101
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As at December 31
ASSETS ($ thousands) 1998 1997
------------- ------------
<S> <C> <C>
INVESTMENTS
Fixed maturity securities available-for-sale, at fair value (note 3) $ 157,743 $ 143,307
(amortized cost: 1998 $152,969; 1997 $140,573)
Short-term investments 34,074 14,992
Policy loans 5,175 3,276
------------- ------------
TOTAL INVESTMENTS $ 196,992 $ 161,575
------------- ------------
Cash and cash equivalents $ 10,320 $ 7,339
Accrued investment income 3,132 2,641
Deferred acquisition costs (note 4) 449,332 364,983
Receivable from affiliates - 4,605
Other assets 6,360 9,626
Due from reinsurers 641,858 553,834
Separate account assets 12,188,420 9,529,160
------------- ------------
TOTAL ASSETS $ 13,496,414 $ 10,633,763
============= =============
LIABILITIES AND SHAREHOLDER'S EQUITY ($ thousands)
LIABILITIES:
Policyholder liabilities and accruals $ 102,252 $ 92,750
Payable to affiliates 4,644 -
Notes payable to affiliates (note 9) 241,419 183,955
Deferred income taxes (note 5) 23,777 16,428
Other liabilities 25,980 27,862
Due to reinsurers 655,892 574,882
Separate account liabilities 12,188,420 9,529,160
------------- ------------
TOTAL LIABILITIES $ 13,242,384 $ 10,425,037
------------- ------------
SHAREHOLDER'S EQUITY:
Common stock (note 7) $ 2,600 $ 2,600
Additional paid-in capital 179,053 179,053
Retained earnings 70,293 25,873
Accumulated other comprehensive income 2,084 1,200
------------- ------------
TOTAL SHAREHOLDER'S EQUITY $ 254,030 $ 208,726
------------- ------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 13,496,414 $ 10,633,763
============= =============
</TABLE>
See accompanying notes.
<PAGE> 102
MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31
($ thousands)
<TABLE>
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Fees from separate accounts and policyholder funds $ 166,498 $ 126,636 $ 95,323
Advisory fees and other distribution revenues 94,821 67,678 46,233
Net investment income (note 3) 12,178 7,906 5,452
Net realized investment gains (note 3) 719 531 764
----------- ---------- ----------
TOTAL REVENUE $ 274,216 $ 202,751 $ 147,772
----------- ---------- ----------
BENEFITS AND EXPENSES:
Policyholder benefits and claims $ 4,885 $ 4,986 $ 4,242
Amortization of deferred acquisition costs (note 4) 53,499 40,649 30,830
Other insurance expenses (note 10) 135,624 100,385 71,255
Financing costs 12,497 14,268 15,821
----------- ---------- ----------
TOTAL BENEFITS AND EXPENSES $ 206,505 $ 160,288 $ 122,148
----------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
$ 67,711 $ 42,463 $ 25,624
----------- ---------- ----------
INCOME TAX EXPENSE (NOTE 5) $ 23,873 $ 15,044 $ 9,079
----------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS $ 43,838 $ 27,419 $ 16,545
----------- ---------- ----------
Discontinued operations (note 15):
Loss from operations, net of tax $ - $ (141) $ (810)
Gain on disposal, net of tax $ 582 $ 5,955 $ -
----------- ---------- ----------
NET INCOME $ 44,420 $ 33,233 $ 15,735
----------- ---------- ----------
</TABLE>
See accompanying notes.
<PAGE> 103
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
RETAINED OTHER TOTAL
COMMON ADDITIONAL EARNINGS COMPREHENSIVE SHAREHOLDER'S
($thousands) STOCK PAID-IN CAPITAL (DEFICIT) INCOME EQUITY
------- --------------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $2,600 $113,322 $(23,095) $ 2,430 $ 95,257
Capital contribution - 18,000 - - 18,000
Comprehensive income (note 2) - - 15,735 (1,921) 13,814
------- -------- -------- -------- ----------
BALANCE, DECEMBER 31, 1996 $2,600 $131,322 $ (7,360) $ 509 $ 127,071
Capital contribution - 47,731 - - 47,731
Comprehensive income (note 2) - - 33,233 691 33,924
------- -------- -------- -------- ----------
BALANCE, DECEMBER 31, 1997 $2,600 $179,053 $25,873 $ 1,200 $ 208,726
Comprehensive income (note 2) - - 44,420 884 45,304
------- -------- -------- -------- ----------
BALANCE, DECEMBER 31, 1998 $2,600 $179,053 $ 70,293 $ 2,084 $ 254,030
------- -------- -------- -------- ----------
</TABLE>
See accompanying notes
<PAGE> 104
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
($ thousands)
<TABLE>
<CAPTION>
1998 1997 1996
----------- -------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 44,420 $ 33,233 $ 15,735
Adjustments to reconcile net income to
net cash used in operating activities:
Write-down of foreclosed real estate - - 342
Amortization of bond discount and premium 685 401 197
Benefits to policyholders 4,885 4,986 4,242
Gain on interest rate swap - - (1,632)
Provision for deferred income tax 6,872 15,767 7,614
Provision for deferred income tax included in discontinued operations - - 331
Net realized investment gains (719) (531) (764)
Amortization of deferred acquisition costs 53,499 40,649 30,830
Amortization of deferred acquisition costs included in discontinued - 1,707 2,214
operations
Policy acquisition costs deferred (138,527) (123,965) (89,535)
Gain on disposal of discontinued operations - (9,394) -
Changes in assets and liabilities:
Accrued investment income (491) (835) 146
Other assets 3,266 (1,396) 2,061
Receivable from affiliates 4,605 (4,605) -
Payable to affiliates 4,644 (1,462) (4,204)
Other liabilities (1,882) 6,642 (1,789)
----------- -------- ---------
Net cash used in operating activities $ (18,743) $(38,803) $ (34,212)
----------- -------- ---------
INVESTING ACTIVITIES:
Fixed maturity securities sold, matured or repaid $ 37,694 $ 74,626 $ 41,269
Fixed maturity securities purchased (50,056) (118,765) (48,300)
Equity securities sold - 1 12,738
Equity securities purchased - (250) (6,034)
Foreclosed real estate sold - 2,268 1,602
Disposal of discontinued operations - 16,338 -
Net change in short-term investments (19,082) (10,697) (3,984)
Policy loans advanced, net (1,899) (2,639) (570)
----------- -------- ---------
Cash used in investing activities $ (33,343) $(39,118) $ (3,279)
----------- -------- ---------
FINANCING ACTIVITIES:
Net reinsurance consideration $ (7,014) $(5,443) $ (4,116)
Deposits and interest credited to policyholder funds 15,551 20,607 20,923
Return of policyholder funds (10,934) (15,462) (24,658)
Increase in notes payable to affiliates 57,464 25,754 138,201
Notes payable repaid - - (109,867)
Capital contribution by Parent - 47,731 18,000
----------- -------- ---------
Cash provided by financing activities $ 55,067 $ 73,187 $ 38,483
----------- -------- ---------
CASH AND CASH EQUIVALENTS:
Increase (decrease) during the year 2,981 (4,734) 992
Balance, beginning of year 7,339 12,073 11,081
----------- -------- ---------
BALANCE, END OF YEAR $ 10,320 $ 7,339 $ 12,073
----------- -------- ---------
</TABLE>
See accompanying notes.
<PAGE> 105
The Manufacturers Life Insurance Company of North America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(IN THOUSANDS OF DOLLARS)
1. ORGANIZATION
The Manufacturers Life Insurance Company of North America (formerly North
American Security Life Insurance Company and hereinafter referred to as
"MNA"), is a wholly-owned subsidiary of Manulife-Wood Logan Holding Co.,
Inc. (formerly NAWL Holding Company, Inc. and hereinafter referred to as
"MWL"). MWL is 62.5% owned by The Manufacturers Life Insurance Company
(USA) ("ManUSA"), 22.5% by MRL Holding, LLC, ("MRL") and 15% by minority
interest shareholders. ManUSA and MRL are indirectly wholly-owned
subsidiaries of The Manufacturers Life Insurance Company ("Manulife
Financial"), a federally chartered Canadian mutual life insurance company.
MNA owns 100% of The Manufacturers Life Insurance Company of New York
(formerly First North American Life Assurance Company, hereinafter "MNY")
and is the managing member with a 90% interest in Manufacturers Securities
Services, LLC ("MSS"). MNY owns a 10% interest in MSS. MNA, MNY and MSS are
hereinafter referred to collectively as "the Company".
MNA issues individual and group annuity contracts in forty-eight states,
excluding New York and New Hampshire. Prior to July 1, 1998, MNA also
issued individual variable life insurance contracts. MNY issues individual
and group annuity contracts and individual life insurance contracts in New
York. Amounts invested in the fixed portion of the contracts are allocated
to the general accounts of the Company or non-insulated separate accounts
of the Company. Amounts invested in the variable portion of the contracts
are allocated to the separate accounts of the Company. Each of these
separate accounts invests in shares of the various portfolios of the
Manufacturers Investment Trust (formerly NASL Series Trust and hereinafter
referred to as "MIT"), a no-load, open-end investment management company
organized as a Massachusetts business trust, or in open-end investment
management companies offered and managed by unaffiliated third parties.
Prior to October 1, 1997, NASL Financial Services Inc. ("NASL Financial"),
a subsidiary of MNA, acted as investment adviser to MIT and as principal
underwriter of the variable contracts issued by the Company. Effective
October 1, 1997, MSS, the successor to NASL Financial, replaced NASL
Financial as the investment advisor to MIT and as the principal underwriter
of all variable contracts issued by MNA. MSS also acts as the principal
underwriter for the variable contracts and is the exclusive distributor for
all contracts issued by MNY.
On October 31, 1998, MNA transferred a 10% interest in the members' equity
of MSS to MNY as a contribution of capital valued at $175.
<PAGE> 106
2. SIGNIFICANT ACCOUNTING POLICIES
A) BASIS OF PRESENTATION
The accompanying consolidated financial statements of the Company have
been prepared in conformity with generally accepted accounting
principles ("GAAP").
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes.
Actual results could differ from reported results using those
estimates.
B) RECENT ACCOUNTING STANDARDS
i) During 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income", SFAS No.
130 establishes standards for reporting and displaying comprehensive
income and its components in a full set of general-purpose annual
financial statements. Comprehensive income includes all changes in
shareholder's equity during a period except those resulting from
investments by and distributions to shareholders. The adoption of SFAS
No. 130 resulted in revised and additional disclosures but had no
effect on the financial position, results of operations, or liquidity
of the Company.
Total comprehensive income was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
-------- --------- --------
<S> <C> <C> <C>
NET INCOME $ 44,420 $ 33,233 $ 15,735
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Unrealized holding gains (losses) arising during the period 1,351 1,036 (1,424)
Less:
Reclassification adjustment for realized gains included
in net income 467 345 497
-------- --------- --------
Other comprehensive income (loss) 884 691 (1,921)
-------- --------- --------
COMPREHENSIVE INCOME $ 45,304 $ 33,924 $ 13,814
-------- --------- --------
</TABLE>
Other comprehensive income (loss) is reported net of taxes of $476,
$372, and ($1,034) for 1998, 1997, and 1996, respectively.
ii) During 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". SFAS No. 131
establishes standards for the disclosure of information about the
Company's operating segments, including disclosures about products and
services, geographic areas, and major customers. The adoption of SFAS
No. 131 did not affect results of operations or financial position,
nor did it affect the manner in which the Company defines its
operating segments. The Company reports three business segments:
Annuities, Savings and Retirement Services, and Life Insurance.
<PAGE> 107
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Annuities segment consists of annuity contracts that provide the
customer with the opportunity to invest in mutual funds managed by
independent investment managers and the Company or in the general
accounts of the Company, with investment returns accumulating on a
tax-deferred basis. The Savings and Retirement Services segment
offers 401(k) products to customers in the State of New York. The
Individual Life Insurance segment offers traditional
non-participating life insurance to the New York market. The Savings
and Retirement Services segment was launched in mid-1998 and the
Individual Life Insurance segment was launched in late 1997. Both
segments are considered to be in the start-up phase. No significant
assets or revenues have been generated to date in these two segments.
Start-up costs, on a pre-tax basis, reported for these two segments
totaled approximately $534 and $2,399, respectively, in 1998 and
$1,551 for the Individual Life Insurance segment in 1997.
In 1997 and 1996, the Company reported two business segments:
Annuities and Mutual Fund Operations. The Company sold its mutual
fund operations in 1997 as described further in Note 15 of these
financial statements.
C) INVESTMENTS
The Company classifies all of its fixed maturity securities as
available-for-sale and records these securities at fair value.
Realized gains and losses on sales of securities classified as
available-for-sale are recognized in net income using the specific
identification method. Changes in the fair value of securities
available-for-sale are reflected directly in accumulated other
comprehensive income after adjustments for deferred taxes and deferred
acquisition costs. Discounts and premiums on investments are amortized
using the effective interest method.
The cost of fixed maturity securities is adjusted for the amortization
of premiums and accretion of discounts using the interest method. This
amortization or accretion is included in net investment income.
For the mortgage-backed bond portion of the fixed maturity securities
portfolio, the Company recognizes amortization using a constant
effective yield based on anticipated prepayments and the estimated
economic life of the securities. When actual prepayments differ
significantly from anticipated prepayments, the effective yield is
recalculated to reflect actual payments to date and anticipated future
payments. The net investment in the security is adjusted to the amount
that would have existed had the new effective yield been applied since
the acquisition of the security. That adjustment is included in net
investment income.
Policy loans are reported at aggregate unpaid balances which
approximate fair value.
Short-term investments, which include investments with maturities of
less than one year and greater than 90 days at the date of
acquisition, are reported at amortized cost which approximates fair
value.
<PAGE> 108
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
D) CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased
with an original maturity date of three months or less to be cash
equivalents. Cash equivalents are stated at cost plus accrued
interest, which approximates fair value.
E) DEFERRED ACQUISITION COSTS (DAC)
Commissions, net of commission allowances for reinsurance ceded, and
other expenses which vary with and are primarily related to the
production of new business are deferred to the extent recoverable and
included as an asset. Acquisition costs associated with annuity
contracts and investment pension contracts are being amortized
generally in proportion to the present value of expected gross profits
from surrender charges and investment, mortality and expense margins.
The amortization is adjusted retrospectively when estimates of current
or future gross profits are revised. DAC associated with traditional
non-participating individual insurance policies is charged to expense
over the premium paying period of the related policies. DAC is
adjusted for the impact on estimated future gross profits assuming the
unrealized gains or losses on securities had been realized at
year-end. The impact of any such adjustments is included in net
unrealized gains (losses) in accumulated other comprehensive income.
DAC is reviewed annually to determine recoverability from future
income and, if not recoverable, it is immediately expensed.
F) POLICYHOLDER LIABILITIES
Policyholder liabilities equal the policyholder account value for the
fixed portions of annuity, variable life and investment pension
contracts with no substantial mortality or morbidity risk. Account
values are increased for deposits received and interest credited and
are reduced by withdrawals. For traditional non-participating life
insurance policies, policyholder liabilities are computed using the
net level premium method and are based upon estimates as to future
mortality, persistency, maintenance expenses and interest rate yields
that are applicable in the year of issue. The assumptions include a
provision for the risk of adverse deviation.
G) SEPARATE ACCOUNTS
Separate account assets and liabilities that are reported in the
accompanying balance sheets represent investments in MIT, which are
mutual funds that are separately administered for the exclusive
benefit of the policyholders of the Company and its affiliates, or
open-end investment management companies offered and managed by
unaffiliated third parties, which are mutual funds that are separately
administered for the benefit of the Company's policyholders and other
contract owners. These assets and liabilities are reported at fair
value. The policyholders, rather than the Company, bear the investment
risk. The operations of the separate accounts are not included in the
accompanying financial statements. Fees charged on separate account
policyholder funds are included in revenues.
<PAGE> 109
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
H) REVENUE RECOGNITION
Fee income from separate accounts, annuity contracts and investment
pension contracts consists of charges for mortality, expenses and
surrender and administration charges that have been assessed against
the policyholder account balances. Premiums on traditional
non-participating life insurance policies are recognized as revenue
when due and currently are included in Fees from Separate Accounts and
Policyholder Liabilities in the statements of income. Investment
income is recorded as revenue when due.
MSS and formerly NASL Financial (collectively the Advisor) are
responsible for managing the corporate and business affairs of MIT and
act as investment advisor to MIT. As compensation for its investment
advisory services, the Advisor receives advisory fees based on the
daily average net assets of the portfolios. The Advisor, as part of
its advisory services, is responsible for selecting and compensating
subadvisors to manage the investment and reinvestment of the assets of
each portfolio, subject to the supervision of the Board of Trustees of
MIT. The Company's discontinued operations include the compensation of
NASL Financial for investment advisory fees and subadvisor
compensation from the North American Funds ("NAF") through October 1,
1997, the date the Company sold NAF. Subadvisor compensation for MIT
is included in other insurance expenses.
I) POLICYHOLDER BENEFITS AND CLAIMS
Benefits for annuity contracts and investment pension contracts
include interest credited to policyholder account balances and benefit
claims incurred during the period in excess of policyholder account
balances.
J) FINANCING AGREEMENTS
MNA has entered into various financing agreements with reinsurers and
an affiliated company. All assets and liabilities related to these
contracts are reported on a gross basis. Due to the nature of MNA's
products, these agreements are accounted for under the deposit method
whereby the net premiums paid to the reinsurers are recorded as
deposits.
K) INCOME TAXES
Income taxes have been provided using the liability method in
accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Under this method, deferred tax assets
and liabilities are determined based on differences between the
financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that likely will be in
effect when the differences are expected to reverse. The measurement
of deferred tax assets is reduced by a valuation allowance if, based
upon the available evidence, it is more likely than not that some or
all of the deferred tax assets will not be realized.
L) RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
current year presentation.
<PAGE> 110
3. INVESTMENTS AND INVESTMENT INCOME
A) FIXED MATURITY SECURITIES
At December 31, 1998, the amortized cost and fair value of fixed
maturity securities available for sale are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED COST UNREALIZED UNREALIZED FAIR VALUE
AS AT DECEMBER 31, GAINS LOSSES
($ thousands) 1998 1997 1998 1997 1998 1997 1998 1997
--------- -------- ------- ------- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. government $ 18,266 $ 14,333 $ 1,144 $ 566 ($28) ($13) $ 19,382 $ 14,886
Corporate 100,705 110,191 3,376 1,905 (35) (23) 104,046 112,073
Mortgage-backed 16,812 10,455 131 74 (68) (3) 16,875 10,526
Foreign governments 16,129 4,535 151 194 (8) - 16,272 4,729
States/political subdivisions 1,057 1,059 111 34 - - 1,168 1,093
--------- -------- ------- ------- ----- ----- --------- ---------
Total fixed maturity securities $ 152,969 $140,573 $ 4,913 $2,773 ($139) ($39) $ 157,743 $ 143,307
--------- -------- ------- ------- ----- ----- --------- ---------
</TABLE>
Proceeds from sales of fixed maturity securities during 1998 were
$18,780 (1997 $53,325; 1996 $15,152).
The contractual maturities of fixed maturity securities at December
31, 1998 are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without prepayment penalties. Corporate
requirements and investment strategies may result in the sale of
investments before maturity.
<TABLE>
<CAPTION>
($ thousands) AMORTIZED COST FAIR VALUE
-------------- ----------
<S> <C> <C>
FIXED MATURITY SECURITIES
One year or less $ 23,380 $23,454
Greater than 1; up to 5 years 69,250 71,105
Greater than 5; up to 10 years 24,610 25,815
Due after 10 years 18,917 20,494
Mortgage-backed securities 16,812 16,875
-------- -------
TOTAL FIXED MATURITY SECURITIES $152,969 $157,743
-------- --------
</TABLE>
Investments with a fair value of $6,105 and $6,284 at December 31,
1998 and 1997, respectively, were on deposit with, or in custody
accounts on behalf of, state insurance departments to satisfy
regulatory requirements.
<PAGE> 111
3. INVESTMENTS AND INVESTMENT INCOME (CONTINUED)
B) INVESTMENT INCOME AND NET REALIZED INVESTMENT GAINS
Income by type of investment was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
------- ------- ------
<S> <C> <C> <C>
Fixed maturity securities $9,904 $ 7,250 $5,197
Equity securities - - 35
Short-term investments 2,503 1,126 1,187
Other invested assets 19 - -
Foreclosed real estate - - 433
------- ------- ------
Gross investment income 12,426 8,376 6,852
------- ------- ------
Investment expenses (248) (470) (1,400)
------- ------- ------
NET INVESTMENT INCOME $12,178 $ 7,906 $5,452
======= ======= ======
</TABLE>
The gross realized gains and losses on the sales of investments were
as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
------- ------- ------
<S> <C> <C> <C>
Fixed maturity securities:
Gross realized gains $724 $788 $430
Gross realized losses (5) (7) (4)
Equity securities
Gross realized gains - - 988
Gross realized losses - (250) (15)
Foreclosed real estate
Gross realized losses - - (635)
---- ---- ----
NET REALIZED GAIN $719 $531 $764
==== ==== ====
</TABLE>
4. DEFERRED ACQUISITION COSTS
The components of the change in DAC were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
----------- ----------- ---------
<S> <C> <C> <C>
Balance at January 1, $ 364,983 $ 290,610 $ 234,715
Capitalization 138,527 123,965 89,535
Amortization (53,499) (40,649) (30,830)
Amortization included in discontinued
operations - (1,707) (2,214)
Amortization included in gain on disposal
of discontinued operations - (6,943) -
Effect of net unrealized gains on
securities available for sale (679) (293) (596)
----------- ----------- ---------
BALANCE AT DECEMBER 31 $ 449,332 $ 364,983 $ 290,610
=========== =========== =========
</TABLE>
To date, the DAC balance is primarily attributable to the Annuities
segment.
5. INCOME TAXES
The components of income tax expense from continuing operations were as
follows:
FOR THE YEARS ENDED DECEMBER 31
<PAGE> 112
<TABLE>
<CAPTION>
($ thousands) 1998 1997 1996
---------- -------- --------
<S> <C> <C> <C>
Current expense (benefit) $ 17,001 $ (723) $ 1,465
Deferred expense 6,872 15,767 7,614
--------- -------- --------
TOTAL EXPENSE $ 23,873 $ 15,044 $ 9,079
========= ======== ========
</TABLE>
Significant components of the Company's net deferred tax liability are as
follows:
<TABLE>
<CAPTION>
AS AT DECEMBER 31
($ thousands) 1998 1997
--------- ----------
<S> <C> <C>
DEFERRED TAX ASSETS:
Financing arrangements $ 1,289 $ 2,699
Interest on notes payable - 1,283
Guaranty fund assessment liabilities 315 315
Real estate 571 608
Other 169 117
--------- ----------
Total deferred tax assets 2,344 5,022
--------- ----------
DEFERRED TAX LIABILITIES:
Deferred policy acquisition costs (22,017) (18,430)
Unrealized gains on securities available-for-sale (1,122) (646)
Other (2,982) (2,374)
--------- ----------
Total deferred tax liabilities (26,121) (21,450)
--------- ----------
NET DEFERRED TAX LIABILITY $ (23,777) $ (16,428)
========= ==========
</TABLE>
The Company is a member of the MWL affiliated group, filing a consolidated
federal income tax return. MNA and MNY file separate state income tax
returns. The method of allocation between the companies is subject to a
written tax sharing agreement under which the tax liability is allocated to
each member of the group on a pro rata basis based on the relationship that
the member's tax liability (computed on a separate return basis) bears to
the tax liability of the consolidated group. The tax charge to MNA or MNY
will not be more than either company would have paid on a separate return
basis. Settlements of taxes are made through an increase or reduction to
the payable to parent, subsidiaries and affiliates which are settled
periodically.
The Company made estimated tax payments of $12,516, $531 and $0 in 1998,
1997 and 1996, respectively.
<PAGE> 113
6. FINANCING AND REINSURANCE AGREEMENTS
The financing agreements entered into with reinsurance companies relate
primarily to the products sold by MNA. Most of MNA's reinsured products are
considered investment products under generally accepted accounting
principles and, as such, the reinsurance agreements are considered
financing arrangements and are accounted for under the deposit method.
Under this method, net premiums received by the reinsurer are recorded as
deposits. Financing transactions have been entered into primarily to
improve cash flow and statutory capital. All financing agreements discussed
below were in effect for the full year in 1998, 1997 and 1996 unless
otherwise indicated.
MNA has entered into an indemnity coinsurance agreement with an
unaffiliated reinsurer to reinsure 100% of all contractual liabilities
arising from the fixed portion of both in-force and new variable annuity
business written by MNA prior to December 31, 1998. Under this agreement,
the reinsurer receives the fixed portion of all premiums and transfers
received by MNA. The reinsurer reimburses MNA for all claims and provides
expense allowances to cover commissions and other costs associated with the
reinsured business.
MNA has treaties with two unaffiliated reinsurers to reinsure its Minimum
Death Benefit Guarantee risk for new business through June 30, 1998. Each
reinsurer has assumed 50% of the risk. In addition, MNA reinsured 50% of
its risk related to the waiving of surrender charges at death with one of
these reinsurers. MNA is paying the reinsurers an asset based premium, the
level of which varies with both the amount of exposure to this risk and the
realized experience. Effective July, 1, 1998, the treaties were amended to
divide the risks between the two unaffiliated reinsurers and an affiliated
reinsurer for new business based upon specific products.
MNA has a treaty with an unaffiliated reinsurer to reinsure a 50% quota
share of the variable portion of MNA's variable life insurance contracts.
In addition, the reinsurer assumes 100% of this product's net amount at
risk in excess of MNA's retention limit of $100 on a YRT basis.
MNA cedes 95% of the variable portion of certain annuity contracts written
prior to December 31, 1996 to an unaffiliated reinsurer under a modified
coinsurance agreement. At the inception of the contract, MNA received
ceding commissions which were recorded as surplus relief. The outstanding
reinsurance payable related to this agreement was $3,053 and $7,156 at
December 31, 1998 and 1997, respectively.
<PAGE> 114
6. FINANCING AND REINSURANCE AGREEMENTS (CONTINUED)
MNA has modified coinsurance agreements with two unaffiliated life
insurance companies to reinsure a quota share of all elements of risk under
the variable portion of certain policy forms for business written by
brokers of their affiliated broker dealers. The quota share reinsured
varies depending on policy form and the issue date of the business. The
second agreement was established in 1997.
During 1998, MNY entered into reinsurance agreements with various
reinsurers to reinsure face amounts in excess of $100 for its traditional
non-participating insurance product. To date, there have been no
reinsurance recoveries under these agreements.
In the event of insolvency of a reinsurer, the Company remains primarily
liable to its policyholders. Failure of reinsurers to honor their
obligations could result in losses to the Company and, accordingly, the
Company periodically monitors the financial condition of its reinsurers.
The Company has not entered into any reinsurance agreements in which the
reinsurer may unilaterally cancel any reinsurance for reasons other than
nonpayment of premiums or other similar credits or a significant change in
the ownership of the Company. The Company does not have any reinsurance
agreements in effect under which the amount of losses paid or accrued
through December 31, 1998 would result in a payment to the reinsurer of
amounts which, in the aggregate and allowing for offset of mutual credits
from other reinsurance agreements with the same reinsurer, exceed the total
direct premiums collected under the reinsured policies.
7. SHAREHOLDER'S EQUITY
The Company has one class of capital stock:
<TABLE>
AS AT DECEMBER 31:
($ thousands) 1998 1997
------- -------
<S> <C> <C>
AUTHORIZED:
3,000 Common shares, Par value $1,000
ISSUED AND OUTSTANDING:
2,600 Common shares $ 2,600 $ 2,600
</TABLE>
Generally, the net assets of MNA and MNY available for the Parent as
dividends are limited to and cannot be made except from earned statutory
basis profits. The maximum amount of dividends that may be paid by life
insurance companies without prior approval of the Insurance Commissioners
of the States of Delaware and New York is subject to restrictions relating
to statutory surplus and net gain from operations on a statutory basis.
<PAGE> 115
7. SHAREHOLDER'S EQUITY (CONTINUED)
Net income (loss) and capital and surplus, as determined in accordance with
statutory accounting principles for MNA and MNY were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
------- -------- ------
<S> <C> <C> <C>
MNA:
Net income $28,067 $ 22,259 $3,067
Net capital and surplus 157,940 139,171 69,554
MNY:
Net income (loss) (5,678) (1,562) 231
Net capital and surplus 62,881 68,336 22,265
------- -------- ------
</TABLE>
State regulatory authorities prescribe statutory accounting practices that
differ in certain respects from generally accepted accounting principles
followed by stock life insurance companies. The significant differences
relate to investments, deferred acquisition costs, deferred income taxes,
non-admitted asset balances and reserve calculation assumptions.
MNA's broker dealer subsidiaries, MSS and formerly NASL Financial (through
October 1, 1997), are subject to the Securities and Exchange Commission's
(SEC) "Net Capital Rule" as defined under rule 15c3-1. At December 31, 1998
and 1997, the net capital of each of the broker dealers exceeded the SEC's
minimum capital requirements.
8. RELATED-PARTY TRANSACTIONS
The Company utilized various services provided by Manulife Financial in
1998, 1997 and 1996, such as legal, personnel, investment accounting and
other corporate services. The charges for these services were approximately
$13,317, $8,229 and $6,053 in 1998, 1997 and 1996, respectively. At
December 31, 1998 and 1997, the Company had a net liability to MLI for
these services and interest accrued on notes payable of $180 and $2,079,
respectively. At December 31, 1998 and 1997, the payable is offset by a
receivable from MIT and MLI for expenses paid on their behalf of $792 and
$8,251, respectively. In addition, the Company has an intercompany payable
to MWL relating to federal income taxes of $5,256 and $1,567 reflected in
the intercompany payable at December 31, 1998 and 1997, respectively.
The financial statements have been prepared from the records maintained by
the Company and may not necessarily be indicative of the financial
conditions or results of operations that would have occurred if the Company
had been operated as an unaffiliated corporation (see also Notes 1, 5, 9,
11, and 13 for additional related-party transactions).
<PAGE> 116
9. NOTES PAYABLE TO AFFILIATES AND LINES OF CREDIT
MNA has promissory notes from ManUSA for $221,000 including an additional
borrowing of $57,500 during 1998. Interest on the loan is calculated at a
fluctuating rate equal to LIBOR plus 32.5 basis points and is payable in
quarterly installments. Principal and accrued interest are payable within
45 days of demand. Accrued interest payable at December 31, 1998 and 1997
is $419 and $455, respectively.
MNA has a surplus note of $20,000 with interest at 8% due to ManUSA. The
note and accrued interest are subordinated to payments due to policyholders
and other claimants. Principal and interest payments and interest accruals
can be made only upon prior approval of the Insurance Department of the
State of Delaware. Interest accrued at December 31, 1998 and 1997 was $0
and $3,191, respectively.
MNA and MNY have unsecured lines of credit with State Street Bank and Trust
totaling $15 million, bearing interest at the bank's money market rate plus
50 basis points. There were no outstanding advancements under the lines of
credit at December 31, 1998 and 1997.
Interest expense and interest paid in 1998 were $13,634 and $16,861,
respectively (1997 $11,073 and $9,354; 1996 $8,775 and $11,727).
10. OTHER INSURANCE EXPENSES
Other insurance expenses were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Selling and administrative expenses $ 49,732 $ 42,581 $29,207
Subadvisory fees 38,701 26,364 15,883
General operating expenses 47,191 31,440 26,165
-------- -------- -------
TOTAL
$135,624 $100,385 $71,255
======== ======== =======
</TABLE>
11. EMPLOYEE BENEFITS
A) EMPLOYEE RETIREMENT PLAN
Prior to July 1, 1998, MNA and MNY participated in a non-contributory
defined benefit pension plan (the "Nalaco Plan") sponsored by Manulife
Financial, covering its employees. A similar plan (the "Manulife
Plan") also existed for ManUSA. Both plans provided pension benefits
based on length of service and final average earnings. Vested benefits
are fully funded; current pension costs are funded as they accrue.
<PAGE> 117
11. EMPLOYEE BENEFITS (CONTINUED)
Effective July 1, 1998, the Nalaco Plan was merged into the Manulife Plan
as approved by the Board of Directors of Manulife Financial. The merged
plan was then restated as a cash balance pension plan entitled, "The
Manulife Financial U.S. Cash Balance Pension Plan" ("Cash Balance Plan").
Participants in the two prior plans ceased accruing benefits under the old
plan effective June 30, 1998, and became participants in the Cash Balance
Plan on July 1, 1998. Also effective July 1, ManUSA became the sponsor of
the Cash Balance Plan. Each participant who was a participant in one of the
prior plans received an opening account balance equal to the present value
of their June 30, 1998 accrued benefit under the prior plan, using Pension
Benefit Guaranty Corporation (PBCG) rates. Future contribution credits
under the Cash Balance Plan vary by service, and interest credits are a
function of interest rate levels. Pension benefits are provided to those
participants after three years of vesting service, and the normal
retirement benefit is actuarially equivalent to the cash balance account at
normal retirement date. The normal form of payment under the Cash Balance
Plan is a life annuity with various optional forms available.
Actuarial valuation of accumulated plan benefits are based on projected
salaries and best estimates of investment yields on plan assets, mortality
of participants, employee termination and ages at retirement. Pension costs
relating to current service and amortization of experience gains and losses
are amortized to income over the estimated average remaining service lives
of the participants. No pension expense was recognized by the sponsor in
1998, 1997, or 1996 because the plan was subject to the full funding
limitation under the Internal Revenue Code.
At December 31, 1998, the projected benefit obligation based on an assumed
interest rate of 6.5% was $51,757. The fair value of plan assets invested
in ManUSA's general fund deposit administration insurance contracts and in
an investment portfolio of equities and fixed income securities managed by
an affiliate were $52,541 and $32,145, respectively.
Prior to July 1, 1998, MNA also participated in an unfunded Supplemental
Executive Retirement Plan (Manulife SERP) sponsored by Manulife Financial
for executives. This was a non qualified plan that provides defined pension
benefits in excess of limits imposed by the law to those retiring after age
50 with 10 or more years of vesting service. The SERP covers selected
executives of MNA. Pension benefits are provided to those participants
after 5 years of vesting service, and the pension benefit is a final
average benefit based on the executive's highest 5-year average earnings.
Compensation is not limited, and benefits are not restricted by the
Internal Revenue Code Section 415.
<PAGE> 118
11. EMPLOYEE BENEFITS (CONTINUED)
Effective July 1, 1998, the Manulife SERP was restated to become a
supplemental cash balance plan, and each participant in the SERP who
became a participant in the restated plan was provided with an opening
account balance equal to the present value of their June 30, 1998
accrued benefit under the SERP, using PBGC rates. Future contribution
credits vary by service, and interest credits are a function of
interest rate levels. These annual contribution credits are made in
respect of the participant's compensation that is in excess of the
limit in Internal Revenue Code Section 401(a)(17). In addition, a one
time contribution may be made for a participant if it is determined at
the time of their termination of employment that the participant's
pension benefit under the Cash Balance Plan is limited by Internal
Revenue Code Section 415. Together, these contributions serve to
restore to the participant the benefit that they would have been
entitled to under the Cash Balance Plan's benefit formula but for the
limitation in Internal Revenue Code Sections 401(a)(17) and 415.
Benefits are provided to those participants after three years. The
default form of payment under the plan is a lump sum, although
participants may elect to receive payment in the form of an annuity
provided that such election is made within the time period prescribed
in the plan. If an annuity form of payment is elected, the amount
payable is equal to the actuarial equivalent of the participant's
balance under the supplemental Cash Balance Plan, using the factors and
assumptions for determining immediate annuity amounts applicable to the
participant under the qualified Cash Balance Plan.
b) 401(K) PLAN
Prior to July 1, 1998, the Company also sponsored a defined
contribution plan, the North American Security Life 401(k) Savings
Plan, which was subject to the provisions of the Employee Retirement
Income Security Act of 1974 ("ERISA"). A similar plan, the Manulife
Financial 401K Savings Plan, also existed for employees of ManUSA.
These two plans were merged on July 1, 1998 into one defined
contribution plan sponsored by ManUSA, as approved by the Board of
Directors on March 26, 1998. The Company contributed $285, $353, and
$307 in 1998, 1997, and 1996, respectively.
c) POSTRETIREMENT BENEFIT PLAN
In addition to the retirement plan, the Company participates in the
postretirement benefit plan of ManUSA which provides retiree medical
and life insurance benefits to those who have attained age 55 with 10
or more years of service. The plan provides medical coverage for
retirees and spouses under age 65. When the retirees or the covered
dependents reach age 65, Medicare provides primary coverage and the
plan provides secondary coverage. There is no contribution for post-age
65 coverage, and no contributions are required for retirees for life
insurance coverage. The plan is unfunded.
The postretirement benefit cost to the Company, which includes the
expected cost of postretirement benefits for newly eligible employees
and for vested employees, interest cost, and gains and losses arising
from differences between actuarial assumptions and actual experience,
is accounted for by the plan sponsor, ManUSA.
<PAGE> 119
12. LEASES
The Company leases its office space and various office equipment under
operating lease agreements. For the years ended December 31, 1998, 1997
and 1996, the Company incurred rent expense of $1,617, $1,316 and
$1,224, respectively. The Company's current office space lease expires
in 2002. The lease for the offices of MNY expires in 1999 and is
subject to a renewal option at market rates prevailing at the time of
renewal.
The minimum lease payments associated with the office space and various
office equipment under operating lease agreements are as follows:
<TABLE>
<CAPTION>
Year ended: Minimum Lease Payments
- -------------------------------------------------
<S> <C>
1999 $1,261
2000 1,197
2001 1,197
2002 198
- -------------------------------------------------
Total $3,853
- -------------------------------------------------
</TABLE>
13. GUARANTEE AGREEMENT
Pursuant to a guarantee agreement, Manulife Financial unconditionally
guarantees that it will, on demand, make funds available to the Company
for the timely payment of contractual claims made under the fixed
portion of the variable annuity contracts issued by MNA. The guarantee
covers the outstanding fixed portion of variable annuity contracts,
including those issued prior to the date of the guarantee agreement.
14. INTEREST RATE SWAP
MNA entered into a variable-for-fixed interest rate swap in 1995 with
Canadian Imperial Bank of Commerce and Deutsche AG for the purpose of
minimizing exposure to fluctuations in interest rates on a portion of
the variable-rate outstanding debt held by MNA. This interest rate swap
was prematurely terminated in 1996 concurrent with the restructuring of
MNA's revolving line of credit, resulting in a gain of $1,632 recorded
as an offset to interest expense.
<PAGE> 120
15. DISCONTINUED OPERATIONS
On May 6, 1997, MNA signed a letter of intent to sell its mutual fund
operations. This disposal has been accounted for as discontinued
operations in accordance with Accounting Principles Board Opinion No.
30, which, among other provisions, required the plan of disposal to be
carried out within one year. On October 1, 1997, the Company sold its
advisory operations for NAF and the pre-existing deferred commission
assets related to the mutual fund operations. In 1998, related to the
sale, the Company received a contingent payment of $1,000, before
income taxes, less an adjustment of $105 to the final settlement of the
purchase price. For 1998 and 1997, the Company realized a gain of $895
and $9,161, before applicable taxes of $313 and $3,206, respectively.
Included in the gain for 1997 is a provision of $10, before applicable
taxes of $3, for the loss from continuing operations during the
phase-out period. Expenses of $223 in 1997 were incurred on the sale
and netted against the realized gain.
The operating results related to discontinued operations are summarized
as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1997 1996
-------------------------------------------------------------------------------------
Advisory fees, commissions
<S> <C> <C>
and distribution revenues $ 4,605 $ 12,445
-------------------------------------------------------------------------------------
Loss from operations before provision for
income (tax) benefit $ (217) $ (1,246)
Provision for income (tax) benefit:
Current 76 766
Deferred (330)
-------------------------------------------------------------------------------------
76 436
-------------------------------------------------------------------------------------
Loss from operations, net of tax $ (141) $ (810)
-------------------------------------------------------------------------------------
</TABLE>
<PAGE> 121
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values and estimated fair values of the Company's
financial instruments are as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------------------------- ----------------------------- -------------------------------
($ thousands) CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
---------------------------------------- ---------------- ------------ ----------------- -------------
ASSETS:
<S> <C> <C> <C> <C>
Fixed maturity securities 157,743 157,743 143,307 143,307
Short-term investments 34,074 34,074 14,992 14,992
Policy loans 5,175 5,175 3,276 3,276
Cash and cash equivalents 10,320 10,320 7,339 7,339
Due from reinsurers 641,858 641,858 553,834 553,834
LIABILITIES:
Policyholder liabilities and 102,252 98,312 92,750 87,375
accruals
Due to reinsurers 655,892 655,892 574,882 574,882
Notes payable to affiliates 241,419 241,419 183,955 183,955
---------------------------------------- ---------------- ------------ ----------------- -------------
</TABLE>
The following methods and assumptions were used by the Company in
estimating the fair value disclosures for financial instruments:
Fixed Maturity Securities: Fair values for fixed maturity securities
are obtained from an independent pricing service.
Short-Term Investments and Cash and Cash Equivalents: Carrying values
approximate fair values.
Policy Loans: Carrying values approximate fair values.
Due from Reinsurers: Fair value is equal to deposits made under the
contract and approximates the carrying value.
Policyholder Liabilities and Accruals: Fair values of the Company's
liabilities under contracts not involving significant mortality risk
(deferred annuities) are estimated to be the cash surrender value, or
the cost the Company would incur to extinguish the liability.
Due to Reinsurers: Amounts on deposit from and payable to reinsurers
reflects the net reinsured cash flow related to financing agreements
which is primarily a current liability. As such, fair value
approximates carrying value.
Notes Payable to Affiliates: Fair value is considered to approximate
carrying value as the majority of notes payable are at variable
interest rates that fluctuate with market interest rate levels.
<PAGE> 122
17. CONTINGENCIES
The Company is subject to various lawsuits that have arisen in the
course of its business. Contingent liabilities arising from litigation,
income taxes and other matters are not considered material in relation
to the financial position of the Company.
18. UNCERTAINTY DUE TO THE YEAR 2000 RISK (UNAUDITED)
The Year 2000 risk is the result of computer programs being written
using two digits, rather than four, to define the applicable year. Any
of the Company's computer programs that have date-sensitive software
may recognize a date using "00" as the year 1900 rather than the year
2000. The effects of the Year 2000 risk may be experienced before, on,
or after January 1, 2000 and, if not addressed, could result in systems
failures or miscalculations causing disruptions of normal business
operations. It is not possible to be certain that the Company's Year
2000 program will fully resolve all aspects of the Year 2000 risk,
including those related to third parties.
